Consumer Spending Outpaces Income Growth as Inflation Continues

Consumers keep spending, income growth is muted, and inflation is still here.

Bit by bit, debt obligations are eating into disposable income growth.

As to whether these pressures may prove a headwind for consumers’ opening their wallets — well, that remains to be seen. There are, however, at least some indications that key spending categories may see a breather.

The Personal Consumption Expenditures price index from the Bureau of Economic Analysis showed that consumer spending in February, as measured month on month, was up 0.8%.

Personal income was up 0.3% over the same timeframe, while prices were up 0.3% overall, including food and energy costs. Taken year over year, prices were up 2.5%, which matched estimates. The latest readings indicate an acceleration of inflation, where monthly readings had been flat through the end of last year.

The personal saving rate in the February data stood at 3.6%, down from 4.1% seen in January and down from recent peaks in the past year of around 5%. The implication is that consumers and households are drawing down their savings to pay for the goods and services they need.

Personal interest payments — including credit card debt — were $524 billion in February, up from $520 billion in January, and higher than the $510 billion that had been recorded as recently as July.

Savings Take a Hit

PYMNTS Intelligence data showed that 15% of consumers said debt accumulation was a key reason that they faced pressures on savings, having dipped into those accounts to help manage their debt loads. More than three-quarters of consumers reported using much of their savings to meet a major expenditure at least once.

There’s a limited lifeline for the savings cash cushion, as consumers said they deplete, on average, 67% of all available savings, with the average consumer facing such depletions once every four years. Among paycheck-to-paycheck consumers, the average recurrence drops to once every 2.5 years. Given the fact that most of us — at more than 60% — live paycheck to paycheck, it follows then that most of us are feeling the pinch on savings.

Separate economic data released this week by The Conference Board revealed that consumers are at best mixed about their future spending plans. As measured across 16 separate categories — spanning from motor vehicles to pet care to travel — only a minority of respondents said they would look to spend over the near term.

Many said they would spend the same amount through the next six months. As many as 30% of consumers said they anticipated spending less over the next six months on travel. Nearly 18% said the same for spending on beauty and personal care items and services. A full 26.2% said they would spend less at restaurants.

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