Consumer spending in advanced economies seems to be on the upswing, buoyed by healthy economic activity and improved labor markets. However, rising tariffs and slow real-wage growth could play spoilsport.
Consumers in advanced economies appear to be back with a bang. In the United States, personal consumption expenditure grew 4.0 percent (at a seasonally adjusted annual rate) in Q3 2018, continuing the momentum of the past few years.1 In the Eurozone, consumers are slowly clawing their way back from the worst of the sovereign debt crisis of 2011–2013, with spending growing steadily since Q4 2013 (figure 1). Even in Japan, where the specter of deflation is yet to be completely routed, the role of consumer spending in GDP growth picked up in 2017 and in Q2 2018.
What explains this surge in consumer spending? More importantly, will the good times continue? It is likely that healthy economic activity, improving labor markets, and rising sentiment have all come together to prop up consumer spending in recent times. There are, however, clouds that lurk on the horizon—from rising tariffs to slow real-wage growth. And whether they will prevail over tailwinds is a question that many will likely be asking.