Consumer spending dips as inflation remains high

Business

(NewsNation) — Consumers are starting to put away their pocketbooks as it appears the rising prices on goods, gas prices and high interest rates are beginning to take a toll on consumer spending.

Spending dropped 0.4% in May from April, when adjusted for inflation, the first dip seen in 2022, according to data released by the Federal Reserve. A dip could be yet another sign a recession is on the horizon.

“Consumers are finally starting to feel the pinch of these higher prices and react by pulling back a little bit, just buying less stuff, going out to dinner a little less,” said Dan Roccato, finance professor at the University of San Diego. “The fear is that spirals into a recession.”

Markets fell again Thursday in reaction to more bad news about inflation coming out of the Fed, which indicated prices in May were up 6.3% from a year earlier. The stock market closed the first half of 2022 suffering 20% losses after opening the year at an all-time high.

“That’s where the market is now, a little bit spooked by the fact that inflation is high, interest rates are going up and the consumer is finally pushing her purse strings back a little bit,” Roccato said.

Tech stocks in particular continue to take hits in the market, continuing a decline in what has been their worst year ever. Since Jan. 1, Tesla stock is down 36%, Apple is down 23% and Meta is down 52%.

“There’s really two types of tech companies, tech companies that make money and tech companies that burn money,” Roccato said. “Funnily enough investors are finally waking up and saying, ‘Gee, I want to put our money into companies’ stocks that are actually going to make some money.'”

The Fed has been aggressively raising interest rates in an effort to combat inflation, marking them up three-quarters of a point June 15, the highest such increase since 1994.

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