Despite a slight dip in spending on goods, consumer spending continued to drive economic growth in the fourth quarter, with a 3.3% increase. This was fueled by higher spending on health care and financial services, as well as upward revisions to nonresidential investment figures, including spending on structures, intellectual property, and equipment. The personal consumption expenditures price index also rose at an annual rate of 1.8% in the fourth quarter, though this was lower than expected.
Recent earnings reports have shown that publicly-traded companies are experiencing higher gross margins due to relief on input costs. However, this trend has not necessarily translated to lower prices for consumers, which has contributed to investor optimism about the S&P 500’s potential for continued growth. President Joe Biden has highlighted strong corporate earnings as evidence of companies profiting off of consumers with high prices, especially in grocery stores.
Economic indicators suggest that consumers may be becoming more selective in their spending following years of demand-driven consumption. Data on personal consumption expenditures for February is expected to be released on Friday, and the trajectory of inflation and the labor market will play a crucial role in determining how long consumers can continue to support economic growth. Another report showed that continuing applications for US unemployment benefits rose to 1.82 million in the week ending March 16, the highest level in nearly two months.