As inflation goes higher, consumer spending seems to be contracting. At least, that’s the takeaway from this month’s consumer spending report, which showed that U.S. householders only spent 0.2% MoM.
That figure is a far cry from its 2.7% MoM change in January, when broad reopening measures helped the economy back onto its feet. Since then, things have been looking up and to the right for the U.S. economy (besides the very obvious and insane war taking place in Europe.)
However, the Ukraine-Russian conflict is exacerbating inflationary woes… 📈 mostly by causing meaningful increases in energy costs. Naturally, those increased costs result in higher inflation. That’s one reason why income after taxes, adjusted for inflation, fell for the seventh straight month.
All of these factors could continue to affect consumer spending growth, and consequently, economic growth. In other words, higher inflation + reduced consumer spending is a recipe for greater odds for an economic recession (something which investors are already concerned about in the intermediate term.)