The Finatical
Week of November 9th, 2021 - Shift in US Consumer Spending & US Economy Decelerates
FinaticTrends - 2 Financial Trends
1 - Shift in US Consumer Spending
The US government reported that personal income declined in September but spending increased as consumers dipped into their savings and saved a smaller share of their income. This is not unexpected given the decline in income due to the expiration of enhanced unemployment insurance. Wage and salary income continued to grow at a healthy pace and consumers continued to spend. However, their spending also continued to shift away from durable goods and toward services, which would be expected as the impact of the virus fades.
The recent huge demand for durable goods over the past few months, even as it abates, is contributing to massive supply chain disruption and higher inflation. If spending on durables falls further, this can help to alleviate supply chain congestion and reduce inflationary pressure. Moreover, as people spend less on durable goods, they are spending more on services, something that should continue provided the virus stays in abeyance. It will be interesting to see how this shift in consumer spending affects the overall global supply chain.
2 - US Economy Decelerates
The headlines last week reported a significant deceleration in US economic growth in the third quarter. Yet it is not likely that this reflects a new trend in demand. Rather, there is considerable evidence that the slowdown was due to two important factors: supply chain disruption and the outbreak of the delta variant of the virus. For now, the delta variant is abating. In addition, there is reason to expect that supply chain disruption will wane over time as demand for goods lessens and supply constraints in Asia ease.
In any event, here are some details: Real GDP increased at an annualized rate of 2.0% from the second to the third quarter. This was a substantial deceleration from the 6.7% growth in the second quarter. The biggest change from the previous quarter was a sizable shift in consumer spending on goods. Having grown at a rate of 13.0% in the second quarter, goods spending fell at a rate of 9.2% in the third quarter. Moreover, this was mainly due to a decline in spending on durable goods that fell at a rate of 26.2%. In addition, that decline was largely driven by a big drop in purchases of automobiles. The latter was likely due to the shortage of semiconductors which is disrupting supply chains in the industry.
Financial Guidance
“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” - Suze Orman
Money Fact
Two-thirds of Americans would struggle to scrounge up $1,000 in an emergency, according to The Associated Press-NORC Center for Public Affairs Research.
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