E Are American Consumers Spending Beyond Their Means?

U.S. consumer spending finished relatively strongly in 2017.

Americans increased their consumer spending 0.4% in December, a solid expansion but slower than the larger spending burst seen in November. U.S. households partly supported their spending in December by dropping their personal saving rate fell to a twelve-year low.

The PCE Price Index rose only 0.1% in December, while the core-PCE price index rose 0.2%. At year-end, the PCE Price Index was up 1.7% year-over-year, down from 1.8% in November, and the core PCE Price Index increased 1.5% year-over-year, unchanged from November.

What explains the fact that Americans have had to dip into their savings to support their higher spending levels in 2017?

Some of this can be traced to the fact that wage gains have only recently started to rebound following years of weak earnings.  

However, Americans are also feeling much more optimistic because of the recent rise in net wealth due to the booming stock market, the recovery in housing prices, the low unemployment rate and the recently passed tax cuts. This improved confidence has encouraged Americans to dip into their savings to support their higher spending.

Finally, the U.S. economy grew at a 2.3% rate for all of 2017, a significant rebound from 1.5% growth in 2016. Nonetheless, the improved growth in 2017 was still well below the goal set by the Trump administration to boost growth to 3%, or better.

 

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