To many observers’ surprise, in September, consumer spending in the United States flatlined. This trend reflects the continued impact of painful inflation. While spending was up by 0.3% from August, in real terms, adjusted for inflation, it was flat. Soaring inflation is stretching the budgets of Americans further and further, starving working families of the resources they need to thrive. Consequently, many are reducing their consumption.
Inflation remained the top issue. It is widely anticipated by analysts to have bumped up 0.2% from August, setting the year-over-year rate at 2.8% come September. The rate of inflation turned out to be more difficult to shake, especially in the energy category. Surging gas prices played an outsized role in the monthly inflation increase, pushing comparable inflation indexes up sharply during the month.
In September, overall gas prices were still high, further straining consumers’ budgets. No sector has felt the impact of rising energy costs more than the construction industry. Those costs are passed on to the consumer in increased costs of goods and services. Food prices saw a surge too, the second monthly increase in a row—the squeeze on household finances continued.
That’s an especially tough economic reality for many households, as chief economist Joe Brusuelas of RSM US warns us. The current conditions are especially bad for them. He stated, “Based on this and recent private sector data, one cannot avoid the fact that the condition of the US household down market is sour at best and weak at worst.” Consumers are under pressure from all-round rising costs and reducing purchasing power. This feeling speaks to the struggles they face in our modern economy.
The Federal Reserve’s preferred measure of inflation is the core Personal Consumption Expenditures (PCE) price index. This index removes food and energy prices, giving them a clearer picture of the underlying inflation trends. I appreciate the caution given the volatility of energy and food prices. The excluding food and energy core PCE is showing more persistent inflationary forces throughout the economy.
Brusuelas further elaborated on the economic divide affecting consumers: “Unless one lives in the upper spur of the K-shaped economy, it is easy to get the idea that at best down-market households are treading water at this time.” This indicates just how far behind many people are in terms of economic recovery and ability to spend right now.
American consumers are being crushed by sky-high prices and slashed wages. This can cause them to modify their purchasing choices, thus having a downturning impact on total financial progress. Together, persistent inflation and high gas prices seem set to weigh more heavily on consumer confidence in the months to come.