Jan 14, 2022 - Economy & Business

Record level consumer demand drops as high prices surge

Data: FRED; Chart: Thomas Oide/Axios
Data: FRED; Chart: Thomas Oide/Axios

Record levels of consumer demand are petering out as high prices cut into wages and add to household worries.

Why it matters: Shoppers will hold off on buying if goods get too expensive — a trend that if big enough could slow down economic growth.

  • Fresh tallies released Friday on retail, holiday shopping and consumer sentiment paint a different picture of what demand looks like now and where it’s going compared to a year ago.

By the numbers: The 2021 holiday shopping season grew 14.1% from 2020 to a new record high of $886.7 billion, according to the National Retail Federation.

Yes, but: Sales declined November to December, the NRF says — a trend that was backed up by data from the Census Bureau, which showed a decline of 1.9% in those two months. 

The big picture: Consumer sentiment has been falling over recent months and downshifted to its second-lowest level in 10 years in the early part of the month.

  • It's down 12.9% since last year, as more people begin to worry about the effect of higher prices on their personal finances and the government's ability to bring those prices down.

What they’re saying: “Consumer sentiment is typically a forward-looking indicator, versus retail sales, [which is] a lagging indicator,” CFRA senior equity analyst Arun Sundaram tells Axios.

  • The two measurements are starting to converge, which could mean weaker spending and retail sales in the coming months, he adds.

What to watch: Personal savings. 

  • The absence of financial padding in the form of enhanced unemployment benefits and child tax credits has caused the personal saving rate to plummet to a new pandemic low of 6.9% as of November.
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