Strong Consumer Spending Boosts U.S. Economic Growth

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®
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Photo Credit: Mike Petrucci, Unsplash

In the past two years, the U.S. consumer has been a big part of the country's strong economic growth.

Rising wages, multiple fiscal stimulus checks, and easy access to cheap credit have helped. Initially, spending on goods lifted the U.S. economy out of the pandemic before restrictions were relaxed and spending shifted back to services. Even as inflation spiked and interest rates rose over the last 12 months, data showed consumers continued to spend.

The chart below tracks monthly U.S. retail and food service sales and shows consumer spending surged during the pandemic recovery and remains significantly above trend at the start of 2023. While retail sales data are not adjusted for high inflation, the increase points to resilient consumer spending.

US Monthly Retail Sales (Retail & Food Services)

US Monthly Retail Sales

The U.S. consumer was the engine that kept the economy going. The US Gross Domestic Product (GDP) chart below shows that consumer spending accounts for approximately 70% of U.S. economic activity (i.e., GDP), making the consumer a significant driver of economic growth. The remaining 30% is split between government spending and private investment, including building homes, business spending, and investments. In 2021 and 2022, these two categories went up and down, but consumer spending has been a positive and steady contributor to GDP growth for the last eight quarters.

Percentage of US Gross Domestic Product (GDP)

Can the US consumer continue to power the economy?

Data from the second half of 2022 shows spending grew slower, with retail sales shrinking by more than -1% in November and December. The decline reflects easing inflation and lower gasoline prices. Still, the dip in spending has raised some concerns about the economy's state and consumers' resilience going into 2023.

However, recently released retail sales data from January 2023 revealed a surge in consumer spending, as shown on the far-right side of the US Monthly Retail Sales chart. Even though inflation is making it harder for people to save money and more people are using credit cards, the labor market remains a strong point for consumers.

If consumer spending growth continues, the US economy may be able to avoid a sharp slowdown.

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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