Consumer spending slowed sharply last month — good news for policymakers worried about inflation, but also a sign that a crucial engine of the economic recovery could finally be losing steam.
U.S. consumers spent just 0.1 percent more in May than the month before, the Commerce Department said Friday. That was down from 0.6 percent growth in April, which was revised down from an earlier estimate of 0.8 percent. Adjusted for inflation, spending in May was flat. The figures can bounce around from month to month, but forecasters expect spending to continue to cool as rising interest rates and dwindling savings take a toll on consumers’ pocketbooks.
The surprising resilience of consumer spending is a big part of the reason that the economy has so far defied predictions of a recession. For much of this year, Americans have continued to shell out for cars, vacations and restaurant meals, helping to offset weakness in other sectors of the economy, like business investment and housing. If that changes, a recession could become inevitable.
Still, a more modest slowdown would be welcome news for officials at the Federal Reserve, who have been concerned that strong consumer demand is pushing up prices and making it harder for the central bank to bring inflation under control.
Policymakers are unlikely to take too much comfort from a single month of data. Spending has shown signs of slowing before — most recently at the end of last year — only to pick up again after a couple months. And as long as the job market remains strong, Americans will have money to spend: Personal income rose 0.4 percent in May, slightly faster than in April, driven by continued strong increases in wages and salaries.
But this time around, there are hints that consumers are becoming more cautious. After months of drawing down savings amid rising prices, Americans have begun saving more, which historically has been a sign of worries about the economy. And more households are falling behind on debt payments, suggesting they are having a harder time keeping up with rising prices.
“Consumers are saving more and spending less, perhaps out of caution as most believe a recession is either here or imminent,” Robert Frick, corporate economist with Navy Federal Credit Union, wrote in a note to clients.
Fed officials will get a fresh look at the state of the labor market next week, when the Labor Department releases data on job openings, hiring and unemployment.