"On the surface, the figure looks solid, increasing 4.4%. The problem, however, is that it reflects a gain of just 3.6% in nominal spending because the personal consumption deflator fell 0.8%, its first decrease since 1961 and the largest decline since 1954, according to Market News.
This means that if the inflation rate for the quarter were at a normal level, say, up 2.0%, personal spending would have seen a very small gain of just 1.6% for the quarter. (I get this by subtracting 2.0% from 3.6%.)
The low level of nominal spending, which was the weakest in four years, reflects strain on the consumer. This figure represents the total amount of money that consumers spent during the quarter, a tally that looked good only because they caught a break with the decline in energy costs. Had energy costs increased, it would have produced a much different result. For context, nominal spending in the overall economy has increased at a pace of 5.6%; it increased at a pace of 5.0% in the fourth quarter."
This is a very solid observation. Considering consumer spending was responsible for 3.05 of the 3.5% increase, it's a very important observation.
I have been concerned about the US consumer for some time. First, consumer spending has now increased for a ton of quarters without a contraction. That's huge. In addition, there's a ton household debt (mortgage debt plus credit card debt) in the economy. At some point we're going to hit debt saturation. Where that line is I have no idea. But when HH debt is over 90% of overall GDP and 120% of national disposable income and debt payments as a percentage of income are at an all-time high, you have to wonder when people will start to reign in their spending.
As usual, the devil of the numbers is in the details.