Personal Consumption Expenditures Decrease as Consumer Sentiment Falls

According to the National Association of Manufacturers’ (NAM) Monday Economic Report for this week, the Index of Consumer Sentiment declined from 70.6 in December to 67.2 in January, the lowest reading since November 2011. This was down from the earlier estimate of 68.8. At the start of 2022, Americans felt less positive about both current and future economic conditions. Consumer sentiment has declined largely on worries about inflation and the continued spread of COVID-19. Overall, consumer confidence has trended lower since April (88.3). In 2020 and 2021, the headline index averaged 81.5 and 77.6, respectively, down from 98.4 and 96.0 in 2018 and 2019.

Personal consumption expenditures fell 0.6% in December, declining for the first time since February 2021. Also in December, spending on durable and nondurable goods decreased 4.1% and 1.7%, respectively. In contrast, service-sector expenditures increased 0.5% for the month. On a YoY basis, personal spending has jumped 13.3%, with durable and nondurable goods soaring 15.6% and 16.1%, respectively, and with service-sector purchases up 12.0% over the past 12 months.

With spending lower, the personal saving rate increased from 7.2% in November to 7.9% in December. The saving rate averaged 11.9% in 2021, down from 16.3% in 2020 but up from 7.6% in both 2018 and 2019.