Decline in Purchasing Power Weighs in on Consumer Spending | So Good News


This memo relies on Morning Consult data for October US Consumer Spending and Inflation. Subscribers to Morning Consult Economic Intelligence can access the full report Here.

Morning Consult’s Consumer Purchasing Power Barometer has warned that a recession could be coming

Morning Consult’s measures of monthly spending and purchasing power both fell in September, indicating that many consumers are holding back and/or selling items as inflation continues to strain household budgets. These findings are consistent with the decline in real retail sales in September and, based on recent data, suggest that official consumer spending figures may also indicate that real investment growth was slower in September.

Economic Intelligence

Decline in Purchasing Power to Slow Real Growth in September and October

The Greatest Growth of Consumers

The combined line is a line chart of the Consumer Purchasing Power Barometer, showing declining purchasing power.

Sources: Bureau of Economic Analysis, US Census Bureau, Bureau of Labor Statistics, Morning Consult Economic Intelligence. Morning Consult’s retail and investment products are calculated using the CPI, while PCE is calculated using its inflation index. Retail sales in August are based on Bloomberg estimates.

As inflation outstrips incomes, consumers’ wallets are shrinking from all angles: Real incomes are down, savings are down, and consumers have to rely more on debt to make monthly payments. As the holiday shopping season approaches, consumers’ ability and willingness to splurge is becoming increasingly scarce.

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The loss of jobs is at risk as rising prices disrupt many consumers

While lower gas and other commodity prices have kept inflation at bay through September, rising labor costs – which drive more spending – are taking away any relief from households.

In September, consumer spending patterns showed that the rise in high-quality jobs was not recognized. Back at the beginning of this year, when consumers were inclined to hold back on discretionary purchases, labor groups registered the highest rates of Price Sensitivity and Change in September. These recent developments suggest that the recent rise in inflation is slowing the ongoing distribution of goods and services even as consumers try to resume their pre-pandemic shopping habits.

Economic Intelligence

High Labor Costs Frustrate Many Consumers

A list of inflation rates showing price increases among service groups.  Bar chart of Supply Chain Indexes of Consumer Inflation Pressures.

Reduced demand for housing starts to weigh on prices

Rising house prices, on top of already high house prices, are increasingly becoming obstacles for buyers, with Morning Consult’s Price Sensitivity and Substitutability measures for housing rising from earlier this year. The growing desperation to buy a home among prospective buyers is being driven by lack of purchase and limited availability, which reinforces the past. Prospective homebuyers not only face rising interest rates, but also lower inventory levels, causing prices to rise.

Economic Intelligence

Spending on Home Purchases Struggles Amidst High Prices, Declining Purchasing Power

The combined line and bar chart shows the Consumer Purchasing Power Barometer figures for the housing and apartment category, which shows that money is a struggle between rising prices and declining purchasing power.  Another line included is a bar chart of the Purchasing Difficulty Index.

The ever-increasing search for affordable housing appears to be driving buyers into the market, and the declining demand for housing is also beginning to affect prices. However, the contribution of domestic inflation to the decline in average prices may be slow and limited. In September, the underlying CPI – which tends to understate home prices – rose 6.6% year-over-year, its fastest pace in 40 years. In contrast, the annual increase in home prices measured by Zillow’s Home Value Index has slowed every month since April, falling to 3.6% in August. While the slow rise in home prices and non-CPI metrics suggest that CPI inflation will eventually absorb this change, the slow supply may prevent home prices from falling.

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Inflation remains a threat to spending

The growth of consumer spending has not fallen, but the problems imposed on the budget due to inflation are increasing. Morning Consult’s measures of real spending and purchasing power fell in September, and inflation-adjusted sales showed a similar decline. Data for September show that rising prices in the service sector, including housing, are driving interest among potential buyers, with a growing sector backing off these purchases. All of these developments point to a slower growth in consumer spending in September.

This memo relies on Morning Consult data for October US Consumer Spending and Inflation. Subscribers to Morning Consult Economic Intelligence can access the full report Hereincluding group details on consumer use and consumer feedback.


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