We have been noting a deceleration in consumer spending (June 15, 2022; May 25, 2022) and the negative impact this has been having on economic activity (Q1 and Q2 GDP decelerated to start 2022). Other sources have been noting that consumer spending is still positive and that this could be suggesting that the economy is not as weak as the GDP numbers would indicate. We went back and looked at the last three recessions to see what happens to consumer spending prior to and during recessions.
Advance retail sales data only goes back to 1992, so we looked at personal consumption expenditures and personal consumption prices for 1989-1991. Nominal personal consumption expenditures were increasing at a year-over-year growth rate of at least 6% until December of 1990 (similar to other months in 1989-1990), and real personal consumption expenditures remained between 2.6-3% until July of 1990 (and did not go negative until December 1990). The recession officially started in July 1990 and the S&P 500 peaked in July 1990.
In 2000, nominal advance retail sales year-over-year growth was above 7% until May and did not stay below 5% until November 2001 (the average from 1994-1998 was 5.7%). Nominal sales growth was only negative in September 2001, and real sales growth did not turn negative until December 2000. Nominal personal consumption expenditures year-over-year growth remained above 6% until February 2001 (the average from 1994-2000 was 6.2%). Real personal consumption expenditures year-over-year growth never turned negative and was above 4% until February 2001 (the average from 1994-2000 was 4.3%). The recession officially started in March 2001 and the S&P 500 peaked in March 2000.
In 2007, nominal advance retail sales year-over-year growth accelerated from August until November and peaked above 5.5% (the average from 2004-2007 was 5.3%). Nominal sales year-over-year growth did not turn negative until September 2008, and real sales growth did not turn negative until December 2007. Nominal personal consumption expenditures year-over-year growth accelerated from July to November 2007 and did not go negative until November 2008. Real personal consumption expenditure year-over-year growth was above 2% until December 2007 and did not go negative until August 2008. The recession officially started in December 2007 and the S&P 500 peaked in October 2007.
In 2022, nominal advance retail sales year-over-year growth has decelerated to 8.5% in June compared to 17% at the start of the year and accelerated to 10.2% in July. Much of the growth in 2022 has come from higher commodity prices, with gasoline stations up 40% year-over-year and grocery stores up 9.2% year-over-year in July. Real sales year-over-year growth was negative from March to June. July nominal year-over-year sales growth was above July CPI but below non-durable goods CPI (14.3%), and nominal sales growth excluding gas stations was 7.8% in July (below July CPI). Nominal personal consumption expenditures year-over-year growth has decelerated from 11% at the start of the year to 8.4% in June. Real personal consumption expenditures year-over-year growth has decelerated from 7% in February to under 2% in June.
The important takeaways from this analysis are that consumer spending can remain elevated until the start of a recession and remain positive into the early part of a recession and that current real spending growth is already in-line with prior recessions.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Vice President, Investment Strategy
Boyd Watterson Asset Management, LLC