Consumer Spending Momentum Retreated in February (Report Preview)

Morning Consult’s measure of total monthly spending grew modestly last month as sticky inflation exerts pressure on consumer budgets
Image conveying inflation and consumer spending in the United States
Getty Images / Morning Consult artwork by Ashley Berry
March 21, 2023 at 5:00 am UTC

Key Takeaways

  • Spending growth slowed in February, with retail sales declining from their January jump. 

  • Household finances have solidified in recent months as rising incomes eased pressure on budgets, but recent improvements are already showing signs of fading as consumers report rising debt balances. 

  • Although certain price pressures may continue to ease, inflation appears to be settling in at an unsustainably high level. 

This memo offers a preview of Morning Consult’s March U.S. Consumer Spending & Inflation Report. Morning Consult Economic Intelligence subscribers can access the full report here.

Spending growth softened in February, showing signs of easing momentum compared with the first month of the year. Following recent improvement in incomes and savings, household finances look to be facing tightening pressures: Consumers are taking on more credit card debt and reporting greater difficulty saving as wage growth cools and inflation looks stickier.

Monthly Percentage Change in Consumer Spending Growth

Line chart of monthly percentage change in consumer spending growth, showing softer retail sales and slower spending growth suggest momentum is already fading after the January jump in outlays.
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Note: Retail sales and Morning Consult's spending data are deflated with the CPI. Seasonally adjusted.

Sources: Morning Consult Economic Intelligence, U.S. Census Bureau, Bureau of Labor Statistic

Consumers’ are still spending, but purchasing momentum is fading

Consumer purchases expanded in February, but softer retail sales and slower spending growth suggest momentum is already fading after the January jump in outlays. The overall increase indicates some residual strength in consumer budgets. Certain categories, like services, continue to show strong growth year on year, suggesting personal consumption expenditures might hold up better than retail categories. 

However, expansion in certain categories came at the cost of others. For instance, growth in grocery spending corresponded with a decline in restaurant outlays as consumers traded down to more affordable meal options. Larger purchases, such as housing and autos, had lower levels of real spending as interest rates weighed on prices and consumers sought opportunities to ease cost burdens on major expenses.

Recent improvements in household finances may soon reverse

Renewed signs that cracks may be forming in household finances help explain the gradual easing in spending momentum. Several months of improving incomes and savings have supported spending growth in early 2023, as described in last month’s report. However, relative to a year ago, consumers in February had a harder time adding to savings, and credit utilization looks poised to pick up. These impacts vary by income, but consumers at both ends of the earnings spectrum are facing challenges. Lower earners recently benefited from improved ability to save as wage gains and cost of living adjustments favored members of this group, but their spending and debt patterns may leave them more vulnerable to negative effects of inflation and interest rates this year.

Persistent price growth on household expenses looks unlikely to let up soon

Inflation has slowed, but it appears increasingly at risk of settling in at a level well above the 2% target. Top-line inflation continued slowing through February, but core inflation — which includes stickier components like services and housing — climbed higher, with last month’s gain equating to a 5.6% annualized growth rate. 

Morning Consult’s indexes tracking supply and price pressures suggest core inflation could grow at a similar pace in March. Category-specific trends contain mixed signals: Services categories continue to face wage pressures, while markets for homes and autos are caught between the upward pressure of potential pent-up demand and the downward pressure exerted by heightened price sensitivity. Despite continually elevated inflation prints, recent instability in the financial system could force the Federal Reserve to pause or slow down potential rate increases, adding to uncertainty about the trajectory of future prices.

A headshot photograph of Kayla Bruun
Kayla Bruun
Senior Economist

Kayla Bruun is a senior economist at decision intelligence company Morning Consult, where she analyzes consumer spending, inflation and household finance trends, leveraging the company’s proprietary high-frequency data.

Prior to joining Morning Consult, Kayla was a key member of the corporate strategy team at telecommunications company SES, where she produced market intelligence and industry analysis of mobility markets. 

Kayla also served as an economist at IHS Markit, where she covered global services industries, provided price forecasts, produced written analyses and served as a subject-matter expert on client-facing consulting projects. 

Kayla earned a bachelor’s degree in economics from Emory University and an MBA with a certificate in nonmarket strategy from Georgetown University’s McDonough School of Business.

Follow her on Twitter @KaylaBruun. For speaking opportunities and booking requests, please email [email protected]

A headshot photograph of Sofia Baig
Sofia Baig

Sofia Baig is an economist at decision intelligence company Morning Consult, where she works on descriptive and predictive analysis that leverages Morning Consult’s proprietary high-frequency data. Previously, she worked for the Federal Reserve Board as a quantitative analyst, focusing on topics related to monetary policy and bank stress testing. She received a bachelor’s degree in economics from Pomona College and a master’s degree in mathematics and statistics from Georgetown University.

Follow her on Twitter @_SofiaBaig_For speaking opportunities and booking requests, please email [email protected]

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