Revised GDP Data Show Consumer Spending May Be Losing Momentum

Economic data frequently comes in stages: There’s the initial estimate, and then a revision.

And in the newest reading of how U.S. gross domestic product (GDP) fared in the first quarter, the Bureau of Economic Analysis indicated that the slowdown was more pronounced than initially thought, coming in at 1.3%, where that annualized pace had been calculated at 1.6%.

Are Consumers Flagging?

The key headwind: Consumer momentum may be waning.

The Bureau’s Thursday (May 30) news release noted the “downward revision” to consumer spending, which at this moment seems pronounced. Personal consumption still grew, but at 2%, from the initial 2.5% reading.

“The increase in consumer spending reflected an increase in services that was partly offset by a decrease in goods,” per the release.

In the meantime, the prices paid continued to tick higher, as the personal consumption expenditures (PCE) price index increased 3.4% in the first, compared with an increase of 1.8% in the fourth quarter.

The news of the shift in spending from goods to services, we note, comes as companies such as Walmart and Target have been cutting prices on thousands of staples, such as household supplies and groceries.

In the first quarter of this year, personal saving was $755.7 billion in the first quarter, compared with $815.5 billion in the fourth quarter. The personal saving rate — personal saving as a percentage of disposable personal income — was 3.6% in the first quarter, compared with 4% in the fourth quarter.

Keeping an Eye on Nonessential Spending

We are, of course, on the cusp of the end of the second quarter, so the first-quarter analysis is decidedly backward looking. Yet the downward revisions hint that the key engine of the U.S. economy — consumer spending — is volatile at best, perhaps flagging at worst.

Friday will give some further consideration of where things stand, with the release of April data.

PYMNTS Intelligence data suggest that there’s a recalibration of what consumers are spending — and where. As roughly 60% of consumers live paycheck to paycheck, 20% of respondents have indicated nonessential spending has contributed to financial stress and instability. About 20% of paycheck-to-paycheck consumers told PYMNTS they expected savings to decrease this year (which dovetails with the latest readings on declining savings rates).

Other data released, as an advance reading from the U.S. Census Bureau on Thursday, show that wholesale inventories were up 0.2% in April vs. March’s levels. Retail inventories were up 0.7% over the same timeframe. The wholesale data, as expectations had been for a flat reading, may indicate that there are more “goods in the channel” that are needed on the shelves … and the price cuts by Target, Walmart and other retailers may be more widespread in the coming months.