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posted on 06 November 2016

Cautionary Signs For Consumer Spending

from Lakshman Achuthan, Co-Founder and Chief Operations Officer of ECRI

Consumer spending, which accounts for roughly 70% of GDP, is critical to the Fed’s optimistic view on the economy as it prepares to hike rates in December. However, consumer spending slowed in the third quarter, and this week’s Fed statement downgraded consumer spending, saying it is “rising moderately," and no longer “growing strongly."

Indeed, there are reasons for concern. This is evident from the nearby chart, which displays year-over-year growth in payroll jobs (top line) and real personal income (bottom line).

Growth in nonfarm payroll jobs has been easing since early 2015 and declined to a 32-month low, with key sections of the population faring worse than others. Meanwhile, growth in real personal income has slipped to a 33-month low. With job and personal income growth in downtrends, consumers’ ability to boost spending is clearly under question.

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