U.S. consumer spending barely rose in February as an increase in spending on services was offset by declining purchases of motor vehicles and other goods, while price pressures mounted, with annual inflation surging by the most since the early 1980s.... But the report from the Commerce Department on Thursday showed spending in January was much stronger than initially estimated. That put consumer spending on track for solid growth this quarter, which would keep the economy expanding, despite the rising headwinds from inflation that is driven by shortages..... Personal income rose 0.5% in February, with wages shooting up 0.8%. The saving rate climbed to 6.3% from 6.1% in January.The income growth is impressive, especially since almost all of the government stimulus measures that have given more funds to Americans during the COVID era have largely faded. It's been replaced by steady wage growth, to the point that if you went to sleep in February 2020 and woke up 2 years later (lucky you!), you wouldn't think things were that different.
A significant decline in COVID-19 infections boosted demand for services like dining out, hotel stays, recreation, air travel and healthcare. Services increased 0.9%, the most in seven months, after rising 0.7% in January. But spending on goods dropped 1.0% after surging 6.5% in the prior month.This chart comparing the COVID-era change in inflation-adjusted spending on "off-premises food" (usually from grocery stores) vs bars, restaurants and hotels says a lot to me. One went up a lot and one collapsed in 2020, but both have reverted back toward the norm, especially in the last year. However, differences still remain.
2. Real spending starts to slow down and fall below the rate of inflation.
3. Income and job growth slow and/or starts to drop.
4. Prices and profiteering level off and inflation slows down. For now, things are continuing in a high-inflation and good growth economy. But you know the change in coming. And what it is sets the tone for what kind of economy we likely will be in as 2022's election season heats up.
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