“While we are pleased with consumer resilience, it was a sharp slowdown,” said Diane Swonk, chief economist at KPMG. Consumer spending rose 0.3 percent, or 1 percent year-over-year, a pace Ms. Swonk called a “detection.” Over the past three quarters, growth has averaged 2.1 percent year-on-year. Figures are adjusted for both seasonal factors and inflation. Economists are looking for a rebound in spending on services to offset the inevitable decline in spending on goods as consumption patterns gradually recover from the pandemic. That was the case in the second quarter, with spending on services rising 4.1 percent year over year, but not enough to prevent a major slowdown. “We thought the pivot would be enough to keep us all well and the reality is it’s not enough because inflation is so high,” Ms Swonk said. From an inflation-fighting perspective, however, it may be a welcome trend. Hot increases in the prices of goods such as cars and home furnishings resulted from a combination of supply chain congestion and rising demand as Americans bought things with money they could not spend on travel and other services during the pandemic. Reducing demand will be crucial to keeping those prices in check — and will make the Federal Reserve’s job somewhat easier. Digging into the tables reveals an interesting dichotomy: The biggest increases in service spending came in part from food in the form of hotels and restaurants, which added 0.6 percentage points to the annual GDP number. The biggest decline in spending also came from food, in the form of groceries and meals to be eaten at home, which took 0.65 percentage points off growth. Health care spending also rose, adding 0.4 percentage points to the annual rate of economic growth. Ben Casselman contributed reporting.
