Dark Winter: Household Spending Drops For First Time in Seven Months

Consumer spending, the biggest driver of economic growth in the U.S., fell for the first time in seven months in November as American households came to grips with the election results, surging covid infections and renewed lockdowns, and a weaker labor market.

Consumer spending on goods and services fell 0.4 percent, twice as much as expected, data from the government showed Wednesday. The prior month was revised down to a rise of 0.3 percent from 0.5 percent.

Spending on goods fell by 1 percent on a seasonally adjusted basis. Durable goods spending fell by 1.7 percent. This was the second consecutive monthly decline for goods and the first decline for durable goods spending since April. Nondurable goods spending fell 0.6 percent, matching October’s decline.

Spending on services fell two-tenths of a percentage point, the first decline since April.

Household income—which measures what Americans garnered from wages, investments and government aid programs—fell 1.1 percent. Economists had predicted a decline of just 0.3 percent. The decline in income was led by a decrease in government social welfare benefits, largely due to the end of some pandemic aid programs.

Wages and salaries, which make up the largest share of household income, rose 0.4 percent after a 0.7 percent gain in October. While still in positive territory, this was the smallest gain for wages and salary in seven months. Dividend income rose 1.1 percent and interest income climbed 0.3 percent.

Disposable income, which subtracts taxes, fell 1.2 percent.

Disposable income fell more than spending, pushing the savings rate down to 12.9 percent in November from 13.6 percent in October.

Inflation was non-existent in November. Compared with a month earlier the Personal Consumption Expenditure price index was flat and core PCE prices, which strip out food and energy, were also flat. Compared with a year ago, the PCE index, the Federal Reserve’s preferred inflation gauge, dipped to 1.1 percent in November from 1.2 percent in October. The twelve-month core PCE rate remained steady at 1.4 percent.