Some of it comes down to the state of U.S. workers’ paychecks. Adjusted for inflation, personal income excluding government transfers peaked in December and has declined at a 3 percent annual rate over the past three months. That helps explain consumption’s punk 0.8 percent contribution to first-quarter GDP, the lowest in a year.
Digging into March’s personal spending data, the headline once again belied strength. On the surface, spending of 0.9 percent was as robust as it gets even after adjusting for inflation, which took it to 0.7 percent. Net out the biggest savings drawdown in six years, however, and you arrive at a decline of 0.2 percent for March.
As for what’s pushing households to tap into their rainy-day funds, Deutsche Bank recently pointed to the 15 percent year-on-year increase in household interest payments. Levels of payments rising at a similar pace preceded the onsets of the last two recessions.