Consumer Spending Drops for the First Time in 7 Months
Amplifying the potential for tough economic times ahead, consumer spending in November fell for the first time in seven months as COVID-19 cases reached new heights, keeping people at home.
Consumer spending on goods and services fell 0.4% to a seasonally adjusted annualized $13 trillion in November, the Bureau of Economic Analysis (BEA) said Wednesday. Americans mostly cut back on purchases of clothing and shoes, motor vehicles and parts, food services, accommodations, and household utilities, while buying more groceries, according to the BEA.
Consumer spending is the main engine of economic growth, accounting for about 68% of gross domestic product (GDP). Since October, when COVID-19 cases started to rise again sharply, states have been imposing new restrictions on businesses and the movements of everyday people.
On top of that, additional government stimulus has yet to materialize. It wasn’t until Monday night that Congress passed a new $900 billion economic rescue bill, and now the president is signaling he may not sign it into law. A bright spot is the development of COVID-19 vaccines, which have just begun to be distributed.
“The next two months could also be grim, with all hopes resting on the vaccine rollout and a new fiscal deal,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a research note. The November drop in consumer spending introduces some “downside risk” to his fourth-quarter GDP growth estimate of 4.9%, he said.