Consumer spending dropped last month, suggesting that Americans are more hesitant to spend money amid historic increases in inflation.
Last month, spending fell by the most since February 2020, reports Bloomberg.
According to a Friday report from the Department of Commerce, purchases of goods and services — adjusted for changes in prices — decreased by 1% from last November. The personal consumption expenditures price gauge — an index used by the Federal Reserve to assess inflation — rose by 0.4% from the past month and by 5.8% since December 2020. This marks the most significant increase in inflation since 1982.
Further indicating the increasing pressure from inflation throughout the economy, the Department of Labor noted that domestic employment costs grew for the second quarter in a row. This increase in employment expenditures denotes the need to increase compensation to keep pace with inflation amid a limited supply of readily available workers.
In the fourth quarter, labor costs rose by 4% on a year-to-year basis, which, according to Reuters, is the largest increase since 2001, after increasing by 3.7% in 2021’s third quarter.
Despite increased spending on employment, Americans continue to file for unemployment at rates that defy predictions made by the federal government. Last week, 50,000 more Americans filed jobless claims than what was predicted by economists. Some of the woes that employers might have may be attributable to the rapid spread of the Omicron variant of COVID-19, but inflation poses a very tangible threat to how they operate their businesses.
Inflation is straining almost every aspect of American life. According to a PwC survey, more than 60% of business leaders believe they will need to increase the costs of their goods and services, if they haven’t already, in 2022.
Pete Boland, the managing partner of the Galley and Mary Margaret’s Olde Irish Tavern in St. Petersburg, Florida, said, “The rent’s going up, the labor’s going up, the food cost is going up.”
He continued, “The $3 tacos aren’t $3 tacos any more. The days of $3 beer are long gone, too.”
In an attempt to bring the inflation rate under control, the Federal Reserve endorsed raising interest rates by March while also keeping the possibility of future larger hikes on the table. Federal Reserve Chairman Jerome Powell commented on Wednesday, according to the Associated Press, that the Federal Reserve would move to decrease the $8.9 trillion in outstanding bond holdings in an effort to strengthen the federal government’s credit and slow spending.