Can Consumers Keep Carrying the U.S. Economy?

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article looking at what may be driving spending and what might derail its momentum:

Consumer spending accounts for about two-thirds of U.S. gross domestic product (GDP), so it plays an outsized role in driving economic growth or slowing it down.

For the last 18 months, U.S. consumers have kept the economy strong despite high inflation and rising interest rates. 

The question now is whether consumers can maintain this momentum through the holiday season and into 2024.

In considering this, it’s important to keep in mind that the Federal Reserve is trying to cool spending through higher interest rates, in their effort to combat inflation. So a moderate slowdown in spending is not necessarily bad for the economy. But throwing it into full reverse could lead to a recession, making it a delicate balance.

Measuring Spending and Inflation

The standard measure of consumer spending is personal consumption expenditures (PCE), released each month by the Bureau of Economic Analysis (BEA). Economists look at the monthly change in PCE for the short-term trend and the year-over-year change for the longer-term trend.

In the most recent report, September PCE increased 0.7% over August, a strong monthly growth rate and up from 0.4% in August over July. The September increase was 0.4% measured in “real” inflation-adjusted dollars, which indicates that consumers were…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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