With this kind of demand, it’s hard to imagine that inflation will just vanish.
By Wolf Richter for WOLF STREET.
Americans are still flush with all kinds of pandemic cash and are still getting gushed by it from states that send out “inflation checks” and similar stuff. And they’re getting big pay increases, and much bigger pay increases when job hopping as there’s still huge demand for labor. And they’re still sitting on all kinds of capital gains, real or imagined. And they’re spending, and they’re easily outspending inflation.
Consumer spending on goods and services, adjusted for inflation – so “real” consumer spending – rose by 0.5% in October from September, seasonally adjusted, the biggest month-to-month increase in a year, according to the Bureau of Economic Analysis today. Year-over-year, inflation-adjusted spending overcame some earlier weak-spots and rose by 1.8%.
Spending rose not only on services, but also on durable goods, where spending was supposed drop as spending was supposed to shift to services, and it rose on nondurable goods. The slowdown in demand just hasn’t happened yet.
Spending on services, adjusted for inflation, rose 0.2% for the month, and by 2.8% from a year ago. It remains below pre-pandemic trend.
Services accounted for about 62% of total consumer spending; it includes healthcare, housing, education, travel bookings in the US, sports events, communication services, haircuts, auto repairs, subscriptions, streaming services, etc.
Spending on durable goods, adjusted for inflation, is the most amazing thing. Americans just don’t give up on buying stuff. There have long been predictions that spending on durable goods – vehicles, appliances, electronics, furniture, etc. – would revert from the levels of the most-overstimulated-economy-ever back to pre-pandemic trends. But that hasn’t happened yet. And in October, spending leaped.
Spending on durable goods, adjusted for inflation, leaped by 2.7% in October from November, seasonally adjusted. Year-over-year, spending rose 2.0%, thereby overcoming weakness earlier in the year.
In terms of inflation-adjusted “chained 2012 dollars,” spending jumped to a seasonally adjusted annual rate of $2.32 trillion, the highest since the crazy stimulus splurge in March, April, and May 2021.
Compared to October 2019, before the pandemic, spending on durable goods was up by 29% adjusted for inflation, as the consumer binge just keeps on binging.
Spending on non-durable goods, adjusted for inflation, rose by 0.3% in October from September, but was down by 1.4% from the stimulus binge that persisted through October last year. This was the third month in a row of increases, after some declines.
This category is dominated by food, gasoline, and household supplies. The spike in gasoline prices earlier in 2022 caused a significant decline in gasoline purchases, as consumers cut back on driving. But all is well now?
This goes to show that Americans are in no mood for a soft landing, or any landing, they’re in no mood for voluntarily cutting back and reducing demand which would be needed to remove some of the fuel from the inflationary fire. Americans are spending with gusto, and they’re outspending inflation, and they’re even spending on durable goods with surprising élan after the huge binge last year, and they’re just not wanting to slow down.
This may be another surprise waiting for us on the inflation front: that consumers haven’t gotten the message yet that the Fed is tightening and cracking down on inflation and that it needs the consumers to play along by buying less. With demand this strong, it’s hard to see how consumer price inflation will just vanish. So all eyes on next year: maybe next year, consumers will back off a little and remove some inflationary fuel.
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