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Disposable Income Rises in Q4, but Will Consumers Keep Spending?

Disposable Income Rises in Q4, but Will Consumers Keep Spending?

Headline numbers reveal that the United States economy keeps growing, outpacing expectations.

Although the pace of growth has been tempered a bit, there are some positive signs of consumers’ financial standing, and a long-awaited recession simply did not materialize.

The questions remain, though, as to whether a rise in disposable personal income — even when adjusted for inflation — will translate into continued spending online and in-store, or whether it will pad savings.

The Bureau of Economic Analysis reported Thursday (Jan. 25) that gross domestic product rose at a seasonally adjusted, annualized pace of 3.3% as measured in the fourth quarter of 2023. It’s an initial reading, and the second, final estimate is due next month.

Thursday’s report represented a slowdown from the 4.9% growth rate that had been seen in the third quarter. But economists had expected to see a 1.5% reading for the most recent period.

The tables accompanying the release showed that consumer spending was 2.8% higher in the fourth quarter, slowing a bit from the 3.1% logged in the third quarter.

The BEA also reported that disposable personal income increased $211.7 billion, or 4.2%, and real disposable personal income, which is adjusted for inflation, increased 2.5%, compared with an increase of 0.3% in the third quarter.

PYMNTS Intelligence found that 85% of consumers said their wages have not kept pace with inflation.

Personal Saving Rate Slows, Debt Payments Rise

To that point, the government’s data noted a slowdown in the personal saving rate. In the fourth quarter, personal saving was $818.9 billion, down from $851.2 billion in the third quarter. The personal saving rate — personal saving as a percentage of disposable personal income — was 4% in the fourth quarter, compared with 4.2% in the third quarter.

Personal interest payments, which include debt obligations such as credit cards (but not mortgage-related debt), rose to $563 billion in the fourth quarter, up from $530 billion in the third quarter, and up markedly from the $395 billion seen in the fourth quarter a year ago.

The increased outlays for credit card (and other) interest-bearing debt have a dual effect. They blunt disposable income a bit and can take a bite out of the cash cushion that households have built up.

Back in October, PYMNTS Intelligence found that in the paycheck-to-paycheck economy, which includes more than 60% of households, more than three-quarters of consumers reported using a significant percentage of their saved income on a major expenditure at least once. Moreover, consumers said they depleted 67% of all available savings, on average, across a four-year timeframe.

The latest economic data underscore some encouraging signs, at least as viewed through the recent rearview mirror. Even during the holiday shopping season, individuals and households managed to keep spending and save a bit of money. But exogenous shocks and unanticipated expenses may throw a curveball into the mix, testing consumers’ willingness (and ability) to keep pushing GDP higher.