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The US Consumer Spends Less; Inflation Cools



The US Consumer Spends Less; Inflation Cools

(CTN News) – There was a sharp drop in US consumer spending in December. This left the economy on a lower growth trajectory heading into 2023.

In addition, inflation has been steadily declining, which could give the Federal Reserve more room to slow the pace of its interest rate increases next week.

On Friday, the Commerce Department reported that US Consumer spending in the United States dropped 0.2% last month, accounting for more than two-thirds of the country’s economic activity.

As compared to the previous report, the November data has been revised downward to reflect a 0.1% decline instead of an improvement of 0.1% as reported previously. US Consumer spending declined by 0.1% during November, according to Reuters.

This data was included in the advance fourth-quarter gross domestic product report, released on Thursday. During the past quarter, US Consumer spending continued to grow at a solid pace, contributing to the economy’s 2.9% annualized growth.

The US Consumer central bank has no requirement to maintain an overly aggressive monetary policy stance in the second half of the year.

This is due to a weak handover to 2023. However, the risks of a recession in the first half of the year are increased. The housing market is in recession due to the Federal Reserve’s fastest rate hike cycle since the 1980s, and manufacturing is in the early stages of a downward spiral.

In recent years, rising borrowing costs have undermined demand for goods, which are typically purchased on credit.

In spite of the fact that spending on services is growing, some households, particularly those with lower incomes, have depleted the savings they had accumulated during the COVID-19 pandemic, thus limiting the extent of the gains.

In November, the personal consumption expenditures (PCE) price index increased 0.1%. During the 12-month period ended December, the PCE price index increased by 5.0% after advancing by 5.5% in November.

With food and energy removed from the equation, the PCE price index rose 0.3% in December, following up on an increase of 0.2% in November.

A year-over-year increase of 4.4% was seen in the core PCE price index in December, when compared to November.

Monetary policy is based on the PCE price index. The rate of inflation has slowed significantly for other inflation measures as well.

As a result of the US Consumer Federal Reserve’s action last year, the federal funds rate was increased by 425 basis points. This means that the rate now ranges between 4.25% and 4.50%, the highest level since 2007.

As reported by the FedWatch Tool of the CME Group, as a result of market pricing, the CME Group projects that the central bank will raise interest rates by 25 basis points during its January 31-February 1 meeting, based on the FedWatch Tool developed by the CME Group.

What is the US consumer economy?

A consumer economy describes an economy driven by consumer spending as a percent of its gross domestic product, as opposed to the other major components of GDP (gross private domestic investment, government spending, and imports netted against exports).


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