Growth in consumer spending fell to the lowest point since March as Americans’ savings fall from the all-time highs seen during the COVID-19 pandemic, according to the Bureau of Economic Analysis (BEA).

Consumer spending, measured by the personal consumption expenditure (PCE), increased by $41.2 billion in the month of October, an increase of 0.2%, less than the 0.7% increase that was seen in September as Americans cut back, accordingto the BEA. The cooling in spending follows a huge decline in the amount of savings Americans collectively hold, falling from over $1 trillion in May to $768.6 billion in October, far from the all-time high of almost $6 trillion in April 2020, according to the Federal Reserve Bank of St. Louis.

The PCE gain marks the smallest increase month-to-month since March, when consumer spending declined 0.08%, according to the Federal Reserve Bank of St. Louis.

The PCE price index, the Federal Reserve’s preferred measure of inflation, increased 3.0% for October year-over-year, down from 3.4% in September and far from the Fed’s 2% inflation target, according to the BEA. The increase year-over-year was led by price gains in services, up 4.4% for the month, compared to just 0.2% for goods.

PCE increased $53.1 billion in spending for services, while goods spending fell $11.9 billion, according to the BEA. The biggest contributor to the increase in services was in healthcare, followed by housing and utilities and international travel.

The consumer price index, another measure of inflation, peaked at 9.1% in June 2022 and has since decelerated to 3.2% in October. In response to the high inflation, the Fed raised its federal funds rate to a range of 5.25% and 5.50%, the highest point in 22 years, in an attempt to cool the economy.

Strong consumer spending has served to boost U.S. economic growth, due to consumption making up around 70% of gross domestic product (GDP). The U.S. saw above-trend growth in the third quarter of 2023, with GDP rising 5.2% after being revised up from 4.9% in a previous estimate, far higher than the 2.1% growth seen in the second quarter, accordingto the BEA.

Will Kessler on November 30, 2023

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