July 6, 2022

The fact that Americans are still spending, albeit more slowly than they were a few months ago, indicates that the main driver of the American economy is starting to slow down.

The Bureau of Economic Analysis (BEA) reported on Thursday that overall consumer spending increased by 0.2 percent in May, down from 0.9 percent rise a month earlier. The research also revealed that one indicator of inflation remained stable, with overall prices rising by 6.3% over the previous 12 months.

Even as inflation reaches 40-year highs, consumer spending has so far been a bright light in the American economy. Consumer confidence indices have fallen to record lows, but despite this, Americans claim they still have faith in the economy. Despite this, they have so far kept up with their spending on goods and services. However, analysts claim that there are indications that this is starting to change as higher interest rates and slower savings rates have a negative impact on household budgets.

“The good news is that we still have savings, but the bad news is that inflation is burning a hole in consumers’ pockets,” said Diane Swonk, chief economist at Grant Thornton. “This is a hard time for consumers, and we’re starting to see inflation eating into some forms of spending.”

Over two-thirds of the U.S. economy is made up of consumer spending, so policymakers and economists are closely monitoring any signs that it may be slowing down. Since the Federal Reserve is actively raising interest rates to calm the economy, some of that slowdown is intentional. However, there are also worries that a more significant consumer slowdown would tilt the economy toward a recession.

Source: Washington Post
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