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U.S. Consumers Pulled Back on Spending in October
November 30, 2023
U.S. consumer slowed their spending in October after a fast-paced summer, but they are feeling more optimistic about the economy.
Consumer spending, which accounts for roughly two-thirds of all U.S. economic activity, increased just 0.2% in October, a sharp decline from a 0.7% rise in September, according to the Commerce Department. October’s reading marks the slowest increase since May, as the combination of moderating wage growth, high interest rates, dwindling pandemic-era savings, and the resumption of student loan payments weighed on Americans’ ability to keep spending the way they did throughout the summer.
Americans increased their spending services, shelling out more for necessities like housing and healthcare, as well as optional services like international travel, spending 5.8% more on trips abroad. These gains were offset by a decline in spending on goods like clothes and furniture. Vehicle sales saw a marked slowdown, which is potentially the result of shortages caused by the autoworkers strike, as well as higher interest rates making financing more expensive.
The report also showed that personal income, which includes wages as well as income from other sources like investments, was up 0.2% in October, down from a 0.4% gain the month prior.
Several factors could constrain Americans’ budgets in the months to come. Households have exhausted most of the excess savings racked up during the pandemic. Credit is more expensive. Student loan payments have resumed after a long moratorium. Nevertheless, data suggests that consumers may continue to spend big during the holiday season. Consumers spent $38 billion during the five days from Thanksgiving through “Cyber Monday,” up 7.8% from the same period last year, according to Adobe Analytics.
American consumer confidence also ticked up in late November. After declining for three consecutive months, The Conference Board’s index of consumer confidence rose to 102 this month from 99.1 in October. The index measures both Americans’ assessment of current economic conditions and their outlook for the short term. The increase was primarily driven by a more positive outlook for the next six months.
