US & World Economies US Economy How Do Consumer Spending Trends Impact the Economy? Consumer Spending Increased By 0.4% in August By Kimberly Amadeo Kimberly Amadeo Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact. learn about our editorial policies Updated on September 30, 2022 Reviewed by Robert C. Kelly Reviewed by Robert C. Kelly Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital. learn about our financial review board Fact checked by Ariana Chávez Fact checked by Ariana Chávez Ariana Chávez has over a decade of professional experience in research, editing, and writing. She has spent time working in academia and digital publishing, specifically with content related to U.S. socioeconomic history and personal finance among other topics. She leverages this background as a fact checker for The Balance to ensure that facts cited in articles are accurate and appropriately sourced. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article History of Consumer Spending Retail Sales How Retailers Have Responded Factors That Impact Spending Photo: MoMo Productions / Getty Images Because consumer spending is such a large component of GDP, it is a leading economic indicator. If spending is flat, economic growth may also be anemic, which can increase recession fears. Beyond forecasting the economy, consumer spending statistics also help retailers evolve in a way that appeals to consumers so they can remain in business. By the Numbers Consumer spending, also known as personal consumption expenditures (PCE), increased 0.4% in August, up from the decrease in July.High levels of inflation have packed a punch, causing consumers to pull back on their spending for much of the second quarter.Consumer spending is a large part of GDP and economists are concerned lowered spending will continue to impact that overall number. History of Consumer Spending Strong consumer spending is the main reason the GDP growth rate has been within a healthy range of 2% to 3% since the Great Recession (not counting the pandemic-induced short recession in 2020). As the table below shows, consumer spending has remained close to that healthy range since 2010, following the financial crisis. Retail Sales For August 2022, preliminary estimates of seasonally adjusted retail show sales increased 0.3% from the previous month. Sales were up 9.1% from the same month last year, and total sales from June through August were up 9.3% from the same period a year ago. How Retailers Have Responded to Changing Consumer Expectations Retailers now have to contend with shoppers who expect high value combined with low prices. As a result, Amazon and other online stores have stolen business from brick-and-mortar stores. Companies that depend exclusively on a low-cost or high-value competitive advantage have fallen behind. Instead, retailers today must provide both. Note Those companies that don't strike the right balance between value and price could lose their customers permanently. Factors That Affect Consumer Spending For business owners looking for ways to appeal to consumers, three trends should factor into their planning. Consumer Debt Cars, mortgages, credit card balances, and student loans make up a large portion of consumer debt. Spending drops when consumers take on too much debt or when they lose jobs based on economic circumstances. When the economy recovers, the unemployment rate goes down, and consumers have more money to spend. Stagnant Wages Average income levels have not kept pace with growth in either the stock market or GDP. That's partly because jobs have been outsourced to cheaper labor in China, India, and low-wage manufacturing in Asia. Despite changes to the North American Free Trade Agreement and other free trade agreements, some manufacturers may still cut jobs locally and hire abroad. Employees who lose jobs may have to cut back on spending and increase their savings to make up for income shortfalls. Consumer Confidence Many analysts look to the Consumer Confidence Index, a measure of how Americans feel about the economy, to predict how likely it is that consumers will spend. People are more likely to shop when they feel confident about their ability to get a more lucrative job. Until the 2020 recession, numbers were inching higher. In August 2021, consumer confidence hit its lowest level since April 2020. Perhaps due to fears of rising inflation as well as COVID-19 variants, this figure has continued to drop into 2022. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Bureau of Economic Analysis. “Personal Income and Outlays." Bureau of Economic Analysis. “National Income and Product Accounts Tables: Table 1.1.5. Gross Domestic Product." U.S. Census Bureau. "Advance Estimates of U.S. Retail and Food Services." University of Michigan. "Current Economic Conditions Index."