Consumers Keep Spending in Q4, But Savings Take a Hit

The latest data on fourth quarter gross domestic product indicates a general “headline number” slowdown.

But underneath the hood, consumer spending is the engine pulling the train, and though spending’s been volatile, consumer expenditures rebounded a bit in the last three months of the year, quickening from the third quarter’s pace.

As reported by the Bureau of Economic Analysis on Thursday (Jan. 30), real GDP grew at an annual rate of 2.3% in the fourth quarter, marking a slowdown from 3% and 3.1% increases in the previous two quarters. For the full year 2024, GDP expanded by 2.8% compared to 2023, slightly lower than the 2.9% growth recorded in 2023.

The Q4 2024 GDP increase was driven by rising consumer and government spending, which grew by 4.2% and 2.5%, respectively. Additionally, a decline in imports contributed positively to growth. However, these gains were partially offset by a sharp 5.6% drop in private investment, marking a significant contraction compared to Q3 2024.

Personal consumption expenditures rose by 2.8%, slightly exceeding 2023’s 2.5% growth but remaining well below the post-pandemic surge of 8.8% in 2021.

Meanwhile, the personal consumption expenditure (PCE) price index saw a 2.3% increase in the most recent quarter, accelerating from 1.5% in the previous quarter.

There are some indications, however, that though incomes have been gaining ground, the amount of money that consumers are pocketing for the future in the form of savings, faced a bit of pressure in the most recent quarter.

Personal Income and Savings Rates

In the latest quarter, disposable personal income was higher, at just under $22 trillion — $21,984.8 billion in Q4 — compared to $21.7 trillion in the third quarter. However, personal savings declined slightly to $896.4 billion, down from $936.6 billion as had been seen in the third quarter, marking the lowest level of 2024. The personal saving rate fell to 4.1% in the latest reading, after reaching 4.3% in Q3, 4.9% in Q2, and 5.4% in Q1, reflecting a gradual decline over the year.

Initial results from companies including the payments network underscore that consumers are still spending even into the new year.

Mastercard, for example, said Thursday in its most recent earnings report that debit spending was up in the low double digits, outpacing credit card spending a bit, as measured year over year. And big bank earnings, as PYMNTS has detailed through the past few weeks, have taken note of the resilient consumer attitude toward opening one’s pocketbook. But at those same banks, deposit trends have been mixed, which is corroborated by the GDP details on savings rates.

Key to what lies ahead will be consumer sentiment. As reported this week, consumer confidence, as measured by the Conference Board, indicated that the overall Index slipped by 5.4 points this month to 104.1.

Notable was the drop in the assessment of “present situations,” where that Index reading slipped by nearly 10 points on worsening expectations of the business and labor market conditions, and the “expectations” measure was also lower for those metrics.