Consumer Spending Boosts US Economic Growth as Confidence Dips

Two new sets of data show consumers are spending strongly but not feeling confident.

U.S. gross domestic product climbed at a seasonal and inflation-adjusted 4.3% annual rate in the quarter running from July through September, the Commerce Department’s Bureau of Labor Statistics said Tuesday (Dec. 23). The report had been delayed by the government shutdown.

“The increase in real GDP in the third quarter reflected increases in consumer spending, exports, and government spending that were partly offset by a decrease in investment,” the department said. “Imports, which are a subtraction in the calculation of GDP, decreased.”

Economists polled by the Wall Street Journal (WSJ) had forecast a 3.2% growth. A report by the WSJ noted that this was the highest growth rate in two years, a measure of strong consumer spending on things like healthcare and recreational vehicles.

But while spending might be strong, consumer confidence is weakening, according to new data from The Conference Board released Tuesday. The board’s latest findings showed that consumer confidence had fallen by 3.8 points in December, marking the fifth consecutive drop.

The decline was felt across all age groups and political affiliations, the report said, as well as among most income brackets, except for those earning less than $15,000 or more than $125,000 per year.

“Consumers’ write-in responses on factors affecting the economy continued to be led by references to prices and inflation, tariffs and trade, and politics,” said Dana M. Peterson, chief economist for The Conference Board. “However, December saw increases in mentions of immigration, war, and topics related to personal finances—including interest rates, taxes and income, banks, and insurance.”

This ongoing pessimism in consumers’ assessments creates a major question mark on the overall health of the economy, considering that sustained consumer spending has been the driving force of GDP in recent readings. The board’s data shows consumers expressing more confidence about spending in the coming months, especially on several big ticket items: homes, cars, appliances and computers/laptops.

The report follows separate BLS data from last week showing that while price growth is cooling overall, consumers are still dealing with higher prices on everyday essentials.

“For households, the read-across is nuanced,” PYMNTS wrote. “Slowing inflation does not feel like falling prices, and for many consumers, budgets remain under pressure…That disconnect is shaping spending decisions, payment choices and brand loyalty.”

And while the Conference Board’s findings showed declining consumer confidence across generations, research from PYMNTS Intelligence shows the nature of consumers’ financial difficulties varies from age group to age group, as covered here last week.

“Many older Americans on fixed incomes are more likely to be squeezed by the rising cost of essentials such as groceries and utilities, while younger adults are juggling unstable income, transportation costs and mounting credit card balances,” that report said.