There are no signs of a decline in US consumer demand yet - they continue to spend heavily.
Consumer Spending Trends
Consumer spending (goods + services), as deflated by the official PCE measure, has increased by 2.2% over the past year, 3.7% over two years, and an impressive 9.7% since the beginning of February 2020.
What is the historical average rate of spending growth? From 2010 to 2019 inclusive, the average monthly growth rate was 0.2%; since February 2020, spending has grown at 0.24% (above the historical trend of 0.20%), even taking into account the collapse in demand in March - May 2020. Over the past 12 months, the rate has been 0.18%, 6 months 0.24%, and 3 months 0.17%, just below the historical trend.
Real Disposable Income Analysis
Real disposable income for U.S. households is up 3.9% from a year earlier, 1.8% over two years, and 5.9% since February 2020.
Is that a lot or a little? The historical growth rates for average monthly income have been 0.21% from 2010 through 2019, 0.26% since February 2020 (due to the mega stimulus in 2020-2021), 0.32% over the last year, 0.08% over 6 months, and 0.1% over the last three months.
It is worth noting that real disposable income growth started to decline significantly from May 2023, double the historical norm.
For wages and salaries, the historical average is 0.22%, 0.14% since February 2020, 0.22% over the last year and 0.21% over the last 6 months, and for payroll, the historical average is 0.21%, 0.11% since February 2020, 0.21% over the last 12 months and 0.2% over the last 6 months.
In the structure of disposable income growth for the year, the FOT accounts for 57%, with another 25% coming from tax cuts, excluding social contributions. Net government transfers remained unchanged.
The slowdown in income growth, with disproportionate growth in consumer demand, has led to a decline in savings amid rising interest costs.
For now, we can state that consumer demand is growing without obvious signs of a slowdown by the historical trend (plus or minus a small error) with a significant decline in income growth rates.
Conclusion
In conclusion, US consumer demand remains strong, with robust spending, but recent data reveals a concerning slowdown in income growth since May 2023. The composition of income growth and its impact on savings necessitate close monitoring as they shape the economic landscape. While consumer demand remains resilient in the short term, the decline in income growth rates warrants attention for potential economic challenges.