As GDP Growth Decelerates, All Eyes Are on Consumer Spending

The latest readings of gross domestic product (GDP) have been revised down — at least a bit.

And though the fourth-quarter GDP still logged some growth, the pace of increase has decelerated from a formerly torrid pace, which trains a spotlight on the prime mover of the U.S. economy.

That would be consumer spending, of course.

As detailed by the Commerce Department on Wednesday (Feb. 28), the economy grew at a 3.2% annualized pace in the fourth quarter, which is down from an initial 3.3% estimate. The newest calculation reflects a deceleration from the 4.9% pace that had been seen in the third quarter. Within the latest report, the government noted that consumer spending came in at an annualized 3% pace in the fourth quarter.

The data also noted that real disposable personal income increased 2.2%, a downward revision of 0.3%. The Wednesday release showed that the personal saving rate — personal saving as a percentage of disposable personal income — was 3.9% in the fourth quarter, a downward revision of 0.1%.

We note that the GDP data is already about two months old, and that this week we’ll get more recent readings on personal consumption — and thus, a sense of inflation’s impact as has been felt so far in 2024. And we’ll get a fuller accounting of the actual flows of household finances — including debt obligations and payments.

Recession Ahead?

But given the fact that, as noted here, and as reported by The Conference Board Tuesday (Feb. 27),  Consumer Confidence slipped in February, after three consecutive months of gains. The board reported that the present situation index — based on consumers; assessment of current business and labor market conditions—fell this month from January.  And the short-term expectations index also was lower, tied in part to lower expectations surrounding income. The board added that the latest reading here was 79.8 — and said that a reading below 80 “often signals recession ahead.”

PYMNTS Intelligence reported this week that just 18% of overall wage earners say their incomes have kept up with inflation — and the percentage increases for high earners, but still remains a minority as 27% of this cohort say the same about their paychecks and inflation. A full third of households earning more than $200,000 annually say that they live paycheck to paycheck.

Discretionary spending on leisure, personal care and everyday transactions represents close to one-third of higher-income consumers’ available income, which signals that there may be some impact to leisure, travel, apparel and other firms in the months ahead, especially if overall consumer confidence remains pressured.