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Consumer Spending Drop Adds to Signs of U.S. Slowdown

  • The personal-consumption expenditures price index, the Federal Reserve’s preferred gauge of inflation, rose 5% in December from a year earlier, after increasing 5.5% in November.
  • The core PCE-price index, which removes volatile food and energy prices, rose 4.4% in December from a year earlier, its slowest pace since October 2021.
  • The central bank aims for 2% annual inflation.
  • The figures leave Fed officials on track to raise interest rates by a quarter-percentage point to a range between 4.5% and 4.75% at their meeting next week.
  • Higher interest rates are making mortgages more expensive and contributing to last year’s slump in home sales.
  • This leads to less spending on appliances, paint and other home goods.
  • The U.S. economy grew at a 2.9% annual rate last quarter, but entered this year with less momentum.
  • Retail sales fell last month at the sharpest pace of 2022.
  • Surveys of U.S. purchasing managers found that higher interest rates and inflation weighed on demand in January in the manufacturing and service sectors.
  • The labor market, meanwhile, has cooled some but remains tight with unemployment at 3.5%, matching a half-century low.
  • U.S. households turned cautious at the end of last year, cutting spending during the holiday shopping season and increasing savings, adding to signs of an economic slowdown.
  • Consumer spending fell a seasonally adjusted 0.2% in December from the prior month.
  • The pullback in spending came as inflation cooled, giving consumers some relief from rapidly rising prices.
  • Households cut spending on goods as prices fell for gasoline and other energy products, they increased spending on services, where prices climbed.
  • The personal saving rate increased to 3.4% in December from 2.9% in November as consumers earned more and spent less.
Paul Curtman
Paul Curtman is a veteran of the U. S. Marine Corps, an author, conference speaker, and statesman. For nearly 20 years, Paul has helped lead and develop leaders in the United States military, public service sectors, and business. Paul is a strong advocate for personal and economic freedom as well as the strength and integrity of the free market system. He is a Fellow at Club for Growth in Washington D.C. and currently lives in Missouri with his wife, Ruth, and their four children.

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