Concerns Rise Over Economic Slowdown as US Consumer Spending Slumps and Savings Deplete

April Personal Income and Expenditure Growth Rates Slow Down
Q1 Growth Rate Drops from 1.6% to 1.3% Due to Weak Consumption

Concerns about an economic slowdown are emerging as the growth in personal income and consumer spending in the United States slows down. While the decline in inflation could accelerate the Federal Reserve's (Fed) interest rate cuts, there are also worries that if consumption cools too rapidly, it could burden the U.S. economy and stock market. The Wall Street Journal (WSJ), a U.S. economic daily, wrote that the Fed might soon face a situation where it worries more about an economic slowdown than inflation.

According to the personal consumption expenditures (PCE) price index report released earlier by the U.S. Department of Commerce on the 2nd (local time), personal income in April increased by 0.3% compared to the previous month, and personal spending rose by 0.2% during the same period. In March, they had increased by 0.5% and 0.7%, respectively, indicating that the growth rates of both personal income and spending declined compared to the previous month.

Real personal income and real personal consumption, adjusted for inflation, both decreased by 0.1% compared to the previous month. Consumers reduced spending on automobiles, dining, and leisure activities. Real disposable income increased by only 1% year-on-year, marking the lowest level in 16 months.

The slowdown in consumption, which had supported the U.S. economy with a strong flow despite high inflation, is regarded as a signal of recession. Consumption accounts for two-thirds of the U.S. economy, so when consumption decreases, the economy inevitably slows down.

The consumption slump was also confirmed in the revised U.S. first-quarter gross domestic product (GDP) growth rate released earlier on the 30th of last month. The first-quarter GDP growth rate was revised downward from the preliminary annualized rate of 1.6% to 1.3%, with the slowdown in consumer spending being the main cause. Wall Street is also lowering its GDP growth forecast for the second quarter. Capital Economics recently downgraded its second-quarter GDP growth forecast from 2.7% to 1.2% in an investment note.

Household savings have also decreased, further reducing the capacity for consumption. According to BMO Capital Markets, the savings rate in April was 3.6%, lower than the 12-month average of 5.2%. The excess savings from government support during the COVID-19 pandemic have recently been depleted, signaling signs of a consumption slowdown.

As consumption, which drives the U.S. economy, slows more sharply than expected, expectations for a decline in inflation are emerging. However, concerns are also raised that the cumulative effects of the Fed's high-intensity tightening could cause the economy to slow rapidly. If consumers close their wallets quickly, corporate earnings could decline, placing significant burdens on the U.S. stock market and economy.

Andrew Holenhorst, an economist at Citigroup, said, "Fed officials will see that consumer spending has cooled to some extent, easing inflationary pressures," adding, "Our outlook for the U.S. economy is not very optimistic."

Moreover, if the overheated labor market also cools down, the slowdown in consumption and the decline in inflation are expected to accelerate. The nonfarm payrolls report for May, to be released on the 7th, is expected to show an increase of 185,000 jobs compared to the previous month. In April, the increase was 175,000 jobs, falling short of the expected 243,000.

Gregory Daco, chief economist at Ernst & Young, analyzed, "The slowdown in labor market momentum will limit household income growth and suppress household spending, which faces reduced savings and increased debt burdens," adding, "As price sensitivity rises, household spending momentum will gradually cool."

This content was produced with the assistance of AI translation services.