Consumers Still Spending Amid Inflation – Consumer Behavior
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Consumer sentiment and spending have remained fairly consistent in recent months, as noted by the Personal Consumption Expenditures Price Index (PCE). Despite a dip in the summer of 2022, current consumer sentiment is at a similar level as before elevated inflation levels emerged. Inflation has steadily decreased for the past 11 months and reached 4% in May 2023, its lowest level since March 2021.
Even with a slowing economy, consumer spending and outlooks have remained resilient. Business investment and pullbacks in inventories have slowed growth, with investor sentiment remaining fragile. This has resulted in two consecutive quarterly decreases in GDP following the previous two-quarters of negative GDP growth.
Data such as this is extremely important to the Fed, which monitors spending and how it affects inflation. However, with aggressive monetary policies in place, deflationary pressures may also continue to grow, potentially negatively impacting asset prices. Declining asset prices can also impact consumer behavior as devaluing home and stock values lead to lower consumer confidence and expenditures.
Sources: University of Michigan, Bureau of Economic Analysis, Federal Reserve
Print Version: PCE-Update-June-2024
