The Washington PostDemocracy Dies in Darkness

Did US Consumer Spending Just Hit Its Peak?


The big economic news of the day was that real consumer spending rose in April by the most in three months, helping to push the S&P 500 Index to its biggest weekly gain since March. At first glance, this may be seen as a sign of resilience on the part of consumers despite the highest inflation rates since the early 1980s. Perhaps, but it’s not encouraging that consumers are having to dig deeper into their pockets to finance that spending.

Commerce Department data released Friday showed purchases of goods and services surged 0.7% in April from March after adjusting for higher prices. Over the past year, only the 1.5% gain in January was bigger. Such strength should temper talk of an imminent recession, especially because consumer spending accounts for about two-thirds of the economy. What’s worrisome is that the personal saving rate took another big dip, dropping below 5% for the first time since 2009. 

The divergence between spending and saving suggests we may be witnessing “the last hurrah” in the strong consumer narrative. It’s not hard to imagine consumers, watching their savings being whittled down at the same time that stock and bond markets are delivering heavy losses, deciding it’s time to take a break from shopping for a while. JPMorgan Chase & Co. estimates that US household wealth has plunged at least $5 trillion since the start of 2022 and could reach $9 trillion by the end of the year. And it’s not as if wages are keeping up with either inflation or spending. The Commerce Department data also showed that personal incomes rose 0.4% in April, decelerating from 0.5% in March and 0.6% in February. “Call it defying gravity or call it denial, it is hard to imagine consumption can continue to grow faster than income forever,” FHN Financial economist Chris Low wrote in a research note to clients.

US corporate profits fell in the first quarter by the most in two years, and employers are don’t seem to be as willing to shell out big raises to keep or attract talent in a slowing economy. “We’ve reached a level of wage inflation where employers are going to say, ‘I’ve done as much as I can,’” Jonas Prising, chief executive officer of ManpowerGroup Inc., the Milwaukee-based staffing company that serves more than 100,000 clients worldwide, told Bloomberg News. “‘My consumers and customers aren’t going to accept me passing these costs on any further, so we need to start to mitigate them.’”

It’s true that while the saving rate may be down, overall savings are at record highs, which should temper concern about the consumer. The generous social programs instituted by the US government to support the economy through the Covid-19 pandemic allowed consumers to build amazingly high cash cushions. Checkable deposits for households and nonprofit organizations rose to $4.06 trillion in December from $1.16 trillion at the end of 2019, according to the Federal Reserve. The previous high for this metric before the pandemic was $1.41 trillion.

Not only that, but the household debt-service ratio has been near record lows since the start of the pandemic, holding comfortably below 10% and nowhere near the record 13.2% peak in 2007 heading into the last recession, Fed data show. This is another reason why betting against the consumer may be foolish. “The decline of the personal savings rate to lows last seen in 2008 shows consumers are making up for time lost during the pandemic — splurging not just on goods but also on discretionary services — even as inflation takes a bite out of real income,” Bloomberg Economics’s Yelena Shulyatyeva wrote in a research note after the personal income and spending data was released. The problem is, consumers are taking on more debt to maintain their spending habits. The Fed said earlier this month that total credit  rose a record $52.4 billion in March from April after a revised $37.7 billion gain in February, Federal Reserve figures showed Friday. The March surge was more than twice the median projection in a Bloomberg survey of economists. Revolving credit outstanding, which includes credit cards, jumped an unprecedented $31.4 billion. 

More evidence that consumer spending may soon run out of steam came in the form of the University of Michigan’s monthly index on Friday. It showed that sentiment dropped in May to the  lowest since 2011. Within the survey, the portion pertaining to whether it’s a good time to buy a major household item fell to the lowest in records going back to the 1970s. As for whether it’s a good time to buy a house, that part of the survey dropped to the lowest since 1982. 

The consumer has had a good run, thanks mainly to the rapid response by the Fed and US government to flood the economy with cash during the pandemic. But all good things must come to an end, and this may be the beginning of a great retrenchment by consumers. More From Other Writers at Bloomberg Opinion:

• Is a Recession Coming? Beware of This Indicator: Kathryn Edwards

• Now Even Chicken Is Getting Too Expensive?: David Fickling 

• Job Market Is Heading for a Soft Landing of Its Own: Conor Sen

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Robert Burgess is the executive editor of Bloomberg Opinion. Previously, he was the global executive editor in charge of financial markets for Bloomberg News.

More stories like this are available on

©2022 Bloomberg L.P.