Consumer spending grew more slowly in November, increasing the risks of a broader economic downturn amid the latest wave of Covid-19 cases.
US consumer spending rose 0.6% last month, after rising 1.4% in October, the Commerce Department reported Thursday. Holiday shoppers bought gifts earlier than usual this year in anticipation of product shortages, which helped boost spending in October while also contributing to slowing sales in November, economists said.
Overall, consumers are staying in shape. Low unemployment, substantial savings, and sharply rising wages give Americans money to spend. Consumers felt more optimistic about the economy in early December as the final weeks of the holiday season approached, according to the Conference Board, a private research group.
âWe’re still on track for really strong consumption in the fourth quarter, but now I’m seeing that momentum continue to fade,â said Aneta Markowska, chief economist at Jefferies LLC.
Ms Markowska and other economists expect the highly contagious Omicron variant of the Covid-19 virus to be a temporary drag on economic growth. Some economists are lowering their growth projections for early 2022 amid growing concerns over the latest increase in the number of cases. Economists at forecasting firm Oxford Economics expect U.S. gross domestic product to grow at an annual rate of 2.5% in the first quarter, down from a previous estimate of 3.4% growth.
Much of this production could be delayed, rather than lost altogether. Nomura economists lowered the GDP forecast for the current quarter and the first quarter of 2022, in part reflecting the weaker consumer spending forecast linked to Omicron. However, they expect growth to accelerate in the second half of next year, as Omicron-induced supply chain disruptions subside and inventory investments that have been pushed back. materialize.
While each wave of growing Covid-19 cases appears less damaging to the economy than the last, some economists say Omicron poses different threats.
For example, Omicron is hitting the northeast harder than other recent virus outbreaks. Businesses in the region tend to be more willing to impose their own restrictions to reduce the virus than some other parts of the country, said Ms Markowska of Jefferies. For example, in New York City, some of Broadway’s most popular shows, including “Hamilton” and “The Lion King,” have canceled performances until Christmas.
The economy is also further along in the reopening process than at the start of the pandemic, meaning Omicron has the potential to reverse reopenings rather than simply delaying them, Ms Markowska said. She noted that office occupancy could decrease due to the spread of Omicron, which could dampen demand for services such as cafeterias.
CNN President Jeff Zucker told staff members on Saturday that the network was closing its offices except for those who must be present to do their jobs.
Omicron also keeps some sick workers at home for a period. This type of dynamic could further restrict the ability of factories to pump goods. Product shortages have been a major barrier to consumers’ ability to spend.
âIt’s not that there is a lack of demand for goods; in fact, it was one of the big surprises of 2021, “said Andrew Hollenhorst, chief US economist at Citigroup Inc.” It goes back to the supply chain. You just can’t get hold of these products.
A shortage of available goods could lead to higher inflation. Inflation is at its highest for 39 years, meaning consumers face higher costs for gifts, appliances and accessories. So far, the rapid rise in costs does not appear to derail consumers’ appetites to spend, although some people are concerned about the long-term outlook for inflation.
David Esguerra, 35 from Phoenix, said he has seen prices rise rapidly. Pet grooming services, including a bath and nail trimming, for her Sofie Terrier Mix have climbed to around $ 80 from $ 60 last year. Farmers’ market croissants cost around $ 6 this year, up from $ 4 in 2020, he said.
The supply chain engineer salary increase this year was below the rate of inflation. As a result, he adjusted his spending habits. For example, he’s researched second-hand markets like Craigslist for furniture to outfit his new home, and he’s cut back on clothes, shoes, and phone accessories.
Mr. Esguerra is not too concerned about his ability to meet short-term daily needs. However, he is worried about the duration of this surge in inflation. âMy concern is more about the long term, how will this affect my financial future? ” he said. âIs inflation going to stay high? “
The weakening of fiscal stimulus could also influence some contours of the economy’s growth path. After the pandemic struck in the spring of 2020, the federal government responded with expanded unemployment benefits of up to $ 600 per week, several rounds of stimulus checks and an increase in the child tax credit from 2021 until 1 $ 600 per child.
The Americans are now managing a large pile of extra money that they have accumulated as a result of the government’s stimulus measures. Consumers were saving at an annualized rate of $ 1,322 billion in October, up from $ 5,764 billion in March, when a new round of stimulus began to hit bank accounts.
As they deplete their savings, some workers may re-enter the workforce and help companies fill vacancies and meet production needs. With a much smaller share of workers’ incomes coming from government stimulus spending, wage growth will become a more important source of purchasing power in the coming months.
Write to Sarah Chaney Cambon at [email protected]
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