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.