Are Consumers Holding Back or Just Calming Down?
This June, consumers stayed home. According to Gallup’s consumer spending survey — a timely indicator of discretionary spending in the United States — daily spending averaged $91 for the month, pulling back from $98 in May.
Not surprisingly, consumer confidence as measured by Gallup’s U.S Economic Confidence Index in June hit its lowest since December last year. According to the survey, about one in five Americans (22 percent) said the economy is “excellent” or “good,” while 34 percent said it is “poor.” Consumers’ overall economic outlook remained bleak as 38 percent said that the economy is improving while 58 percent said it was getting worse.
According to Gallup’s self-reported consumer spending survey, the drop in daily spending among all Americans was led by contraction in daily spending among the richer Americans. Americans living in households with $90,000 a year or more in income spent an average of $157 a day in June, down sharply from $189 a day in May. On the other hand, reported spending among middle- and lower-income Americans (households with incomes of less than $90,000 a year) was steady in June. Spending among this group has been roughly the same each month since January. The reduction in spending by upper class Americans could be due to increased savings. Going by economic theory, when incomes rise beyond a critical threshold, consumers tend to start saving larger portions of their income. This is especially true when inflation is expected to rise in the near future.
Gallup’s survey includes basics such as gas purchases at the pump and impulse purchases online or in stores to gauge patterns in discretionary spending, but it does not include routine spending, or consumer’s monthly bills, and big-ticket items like homes or cars.