January 31, 2025
Personal consumption expenditures rose 0.7% in December after climbing 0.6% in November.. In the past year nominal spending has risen 5.7%.
What we are really interested in is “real” or inflation-adjusted spending. That is what goes into the GDP calculation. After adjusting for inflation real consumption spending 0.4% in December after gaining 0.5% in November. In the past year real spending has risen 3.1%. In the past three months that pace has climbed to 4.3%.. Thus, the consumer’s willingness to spend remains solid.
Personal income rose 0.4% in December after rising 0.3% in November. The growth in income is being fueled by growth in wages which climbed 0.4% in December after rising 0.5% in November. In the past year wages have risen 5.7%.
Real disposable income — what is left after paying taxes and adjusted for inflation — rose 0.1% in both November and December. In the past year it has risen by 2.4%.
The savings rate fell 0.3% in December to 3;.8% after declining 0.2% in November. Consumers are saving less of their paycheck each month than what they have done historically. In the 10-years prior to the 2020 recession the savings rate averaged 7.0%. At 3.8% the savings rate is about one-half of its historical average. With real disposable income rising at a 2.4% pace in recent months and real spending rising 4.3%, one would think that consumers will soon have to curtail their pace of spending. But the savings rate has been significantly below the historical 7.0% mark for three years! It appears that they are using credit card borrowing or some of their newfound gains in the stock market to supplement their spending. We expect consumers to spend at a 2.5-3.0% pace throughout 2025.
A year or so ago consumers were rapidly running up their credit card bills. But the rate of growth in credit card borrowing has slowed to about 5.0%.
Thus far the additional debt has not been a problem. If that were the case, delinquency rates on consumer debt should have begun to rise. They have inched higher but that is all
GDP rose 2.3% in the fourth quarter and 2.5% in 2024. Steady job gains and significant wage gains will provide enough fuel to keep the economy growing at a moderate rate in the months to come. We look for GDP growth of 2.9% in 2025.
Stephen Slifer
NumberNomics
Charleston, SC
Excellent analysis and charts. I am amazed home high consumer confidence remains with all the talk of recession in the media. I just added your site to my sites list of recommended economic links.
I think consumer confidence is based to a large degree on what is happening to the stock market. We all read the stuff that is published in the print media, magazine articles, blogs, tweets, etc. But perhaps there is so much information out that that we get ourselves confused and go back to how all that is affecting the stock market. If we as consumers were seeing obvious signs of prices rising because of the tariffs being applied to Chinese goods perhaps we would be less confident. That may be coming, but we are not there yet.
All the best.
Steve