Consumer-level spending has cooled off from the surge seen during the 2022 holiday season, raising concerns about the health of the U.S. economy. File Photo by John Angelillo/UPI | License Photo
Jan. 27 (UPI) -- Federal U.S. data published Friday on personal incomes and spending showed some of the inflationary strains are starting to catch up with consumers, though it's unlikely the world's largest economy will experience a major recession.
The Bureau of Economic Analysis, part of the Commerce Department, reported personal income increased by 0.2% in December to $49.6 billion, disposable income increased by 0.3% to $49.2 billion, but spending took a hit, declining by 0.2% from November levels to $41.6 billion.
Spending in November improved by 0.1% from October levels, suggesting inflationary pressures are starting to build for consumers. Positive data from November was supported in part by an increase in wages and salaries, and recent layoffs in the tech sector could be a source of mounting concern.
Consumer-level inflation is cooling off from the double-digit levels that gripped the U.S. economy during summer 2022. Prices, particularly at the grocery store, remain stubbornly high, with eggs in particular experiencing an exponential gain in prices at the retail level.
James Knightly, the chief economist at ING, said that he's not concerned about the prevailing trends.
"Consumer spending slowed sharply through the fourth quarter and we will need to see a rapid turnaround to prevent a contraction in the first quarter of this year," he wrote.
On Thursday, the Commerce Department reported gross domestic product increased at an annual rate of 2.9% during the fourth quarter, a slowdown from the 3.2% expansion recorded during the three-month period ending in September.
The government attributed the decline to a slump in exports and lower spending in general, both at the consumer and at the state and local government level.
Personal incomes and spending should play a role in next week's rate decision from the Federal Reserve. The Fed is widely expected to continue hiking rates, but not as steep as the increase of 75 basis points, or 0.75%, that prevailed through 2022. Canada's central bank raised its lending rate by 25 basis points this week and suggested it would pause to review how effective its policies have been and the U.S. Fed could follow suit.
Markets were mixed at the start of trading on Wall Street. As of 9:30 a.m. EST, the Dow was up 0.6%, while the S&P 500 and Nasdaq were slightly in the red. Crude oil prices were in rally mode, with Brent, the global benchmark, up some 1% to trade in the $88 per barrel range.