Mitch's Mailbox

February 6th, 2023

Does Lower Consumer Spending Signal a Recession Ahead?


Katelyn M. from Sandy, UT asks: Hello Mitch, I saw that spending in the U.S. went down in December, which is supposed to be great with the holiday shopping season. Do you think this is yet another sign that the U.S. is headed for a recession?

Mitch’s Response:

U.S. consumer spending is a good metric for consumers to monitor since it accounts for more than two-thirds of total economic output. 

To clarify your question a bit, it is the case that consumer spending fell in November and December of last year. Consumer spending was originally reported to have risen by 0.1% in November, but that figure was revised to show a 0.1% decline in the latest Commerce Department report.1 

Digging into the December numbers reveals some interesting insights, which I do not think strengthen or weaken the case for recession. Americans cut back spending at restaurants and bars, but at least some of this retrenchment could be attributed to harsh winter weather in many parts of the country. Spending on cars, furniture, and equipment also fell by -1.9% while outlays for clothes and other nondurables fell by -1.4%. At the same time, however, spending on services in December rose by 0.5%, which was buoyed by higher activity in utilities, air travel, and healthcare.

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Importantly, a softening in overall consumer activity in November and December did not prevent the U.S. economy from expanding in the fourth quarter. Advanced GDP estimates – which include the November (-0.1%) and December (-0.2%) consumer spending figures – showed the U.S. economy expanding at a 2.9% annualized rate in Q4. This marks a relatively strong rate of growth despite consumers pulling back at the end of the year. 

One of the key reasons the overall economy held up – even as spending slowed in the final two months – was because of strong spending in October, which is important to consider in the context of weaker November and December figures. Many retailers notably offered discounts very early in the holiday shopping season to lure consumers into stores, and in an effort to expand the length of the holiday shopping season and to work through bloated inventories. As readers can see in the October consumer spending chart below, it was a very strong month indicative of consumers shifting purchases up – not of them eschewing purchases altogether.


In my view, consumer spending will continue to hold its ground as long as the labor market remains strong and wages continue to push higher, both of which I continue to see in the data today. Though layoffs at major companies (particularly in tech) have made headlines lately, small business hiring remains robust – accounting for 80% of available job openings today. 

One final detail to point out is that in my column last year, I suggested that strong U.S. consumers – supported by a strong labor market and good household financials – may help the U.S. avoid recession, but they may also simply have the effect of preventing it from becoming severe if it does indeed happen. I still believe that to be the case, even with weak November and December 2022 spending. 

No matter the outcome of the U.S. economy, I still encourage all investors to be one step ahead. One challenge an investor will face is market volatility. Even though it’s a normal part of the market flow, there are ways to eliminate it. 

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1 Reuters. 2023.

2 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.

3 Bea. December 1, 2022.,or%200.8%20percent%2C%20in%20October

4 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.

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