US consumer spending was much weaker in the second quarter than previously estimated

By CNN Newsource

Published September 28, 2023 5:43 AM

By Bryan Mena, CNN

Washington, DC (CNN) — The Commerce Department’s final revision of second-quarter gross domestic product, the broadest measure of economic output, showed that economic growth was unchanged from the second estimate, holding at an annualized rate of 2.1%.

However, consumer spending, America’s economic engine, was revised much lower, to a 0.8% annualized rate, according to data released Thursday. That’s down from the 1.7% rate reflected in the previous estimate. Spending in the second quarter grew at its weakest pace since the first quarter of 2022, when it was flat.

Thursday’s hefty revision on spending shows that Americans pared back their spending from the beginning of the year much more than previously thought. Consumer spending accounts for about 70% of economic output. US consumers spent less on services and nondurable goods, which are products meant to last a short while, such as clothes, cleaning supplies and beauty products.

The second quarter stretches from April through June, but the Commerce Department releases consumer spending figures on a monthly basis. In July, consumer spending jumped a robust 0.8%, the strongest monthly gain since January, as shoppers spent on concerts, films, toys and recreational equipment. Spending figures for August will be released Friday.

A report from Moody’s Investors Service released Wednesday argues that consumer spending is expected to slow further in the coming months as Americans become more cautious about making purchases.

“Post pandemic spending on deferred travel and experiences has increased. Yet, tighter budgets may prompt consumers to cut back on discretionary services spending, especially as services inflation remains sticky,” wrote Claire Li, vice president, credit strategy and research at Moody’s Investors Service, in a statement.

Economic headwinds remain

The final revision also showed that business investment was much stronger in the second quarter than the prior estimate showed, advancing at a 7.4% annualized rate in the second quarter, according to the final estimate, up from the prior estimate of 6.1%. That was driven by spending on “structures,” or products that are “usually constructed at the location where they will be used and that typically have long economic lives,” according to the Commerce Department.

A closely watched monthly measure of business investment — new orders for nondefense capital goods, excluding aircraft — grew 0.9% in August, according to Commerce Department data released Wednesday. That measure expanded in three of the six months through August.

Economists still don’t expect the US economy to slip into a recession this year — although next year is another question — but there are a number of headwinds that could weigh on growth.

“In [the fourth quarter], slower consumer spending on services plus the quadruple threat from the resumption of student loan payments, a government shutdown, a strike by auto union workers, rising oil prices could significantly weigh on GDP; especially in an economy weighed down by elevated prices and interest rates,” wrote Gregory Daco, chief economist at EY-Parthenon, in a note.