US: Favorable Factors Boosting Consumer Spending Are Disappearing

■ Amid slowing base income growth, declining household purchasing power, and diminishing asset effects, the tailwinds driving consumption are stalling.  

■ Rising energy prices may turn into headwinds, suppressing consumption. 
 
Personal consumption, the largest demand sector in the US economy, has been gradually slowing its expansion since last fall. Latest data shows that while personal consumption expenditure in January (nominal +0.4%, real +0.3%) increased, primarily in services, after adjusting for inflation, it only saw a slight increase following December, while goods consumption has declined for two consecutive months in real terms. One reason is weak personal income growth. Although disposable income in January (nominal +0.9%, real +0.7%) increased significantly due to the annual adjustment of Social Security payments, real income remained largely stagnant in the second half of last year. Lacking income growth support, the expansion of consumption led to a decline in the savings rate to levels not seen until the second half of 2022 in December. The increase in disposable income in January, largely due to one-off factors, flowed into savings, failing to effectively stimulate consumption given weak growth in base income. Furthermore, revolving credit, including credit cards, has seen sluggish growth in consumer credit balances since the end of 2024, indicating a slowdown in borrowing-supported consumption. 
 
While the consumer confidence index (March: 91.8) has risen for two consecutive months, it remains below levels since the details of the "reciprocal tariffs" were announced last April. The decline in the current conditions index is particularly pronounced, currently remaining at its lowest level since the early post-pandemic recovery in 2021. The decline in the March expectations index suggests that the economic situation of households may further deteriorate. With energy prices rising sharply, household purchasing power will further decline, potentially becoming a significant factor suppressing consumption among low- and middle-income groups. 
 
Financial market movements since March are also expected to constrain personal consumption indirectly. Rising inflation concerns have led to higher market interest rates, pushing up mortgage rates and increasing the interest burden on households. Moreover, before the energy price increases, the stock market had already entered a correction phase due to the threat of artificial intelligence (AI) replacing software services and concerns about liquidity in the private credit market; if energy supply concerns lead to a prolonged stock price correction, the asset effect that previously drove consumption among high-income groups may also weaken. 

 
Although the tax rebates from the spending and tax cuts bill (OBBBA) expected to be implemented this spring will improve household disposable income, the tailwinds that previously supported personal consumption have gradually disappeared from the perspectives of income (flow), confidence (expectations), and assets (stock) against the backdrop of slowing basic income growth, concerns about declining household purchasing power, and weakening asset effects. Meanwhile, rising energy prices may become a new headwind.