Consumer Spending May Be Worse Than It Seems

The data have been clear month after month. Even in the face of heavy inflation, consumers have continued to increase their spending. And if that’s the case, then everything should be fine, because that spending is almost 70% of GDP, right/?

Maybe not. The problem with discussing averages is that the country isn’t one where everyone sits at average, or that distributions among people are even. They aren’t. That makes getting a true picture of the economy, based on consumer spending, difficult.

“While U.S. adults earning $100,000 or more seem to be taking inflation in stride when it comes to purchasing decisions, those in households earning below $100,000 a year are increasingly pulling back, with sticker shock and trading down taking a toll on spending growth,” says new data from Morning Consult.

That behavior can vary widely by socioeconomic group shouldn’t be surprising. Reports of numeric analyses often focus on simple-to-understand single numbers, like the median or average or total. All useful information, but still limited because none of them give much insight into the distribution.

“Robust spending by higher-earning adults is masking the degree to which purchasing power is deteriorating across the income distribution of U.S. consumers, according to the latest release of Morning Consult’s Consumer Purchasing Power Barometer,” the firm says.

The data is different from the government’s calculations, but if it gives a somewhat accurate look into the distributions of reactions to the economic situation, it’s a valuable addition. If Morning Consult is correct, then what seems to have been an increasing amount of spending according to the government may actually be more spending by wealthier households and less spending by those that make less, which is the majority of the country. The effect is similar to looking at the spending of ten people. Two of them spend $20,000 each in a month and the other eight only have enough to spend $200 each. But the total is $41,600, or $4,160 each, which is far from reality.

According to Morning Consult’s take, real spending has “deteriorated since March.” The Bureau of Economic Analysis shows positive change since March except for May.

“[A] deeper look at divergences across demographics reveals worrying signs for the trajectory of consumer spending growth,” says Morning Consult. The potential that they might be right should be concerning. Yes, almost 70% of GDP is consumer spending. Reduce consumer spending growth and you’re likely looking at a shrinking GDP. The country would also be looking at difficulty saving, harder times paying for things, and less ability to purchase. That ultimately could affect jobs, retail, and set off waves of impact on all sorts of real estate.