Household Spending Withstands the Oil Shock

Someone forgot to tell American consumers that they are supposed to be deeply depressed.

Consumer spending rose by 0.5 percent in April, according to the personal consumption expenditure figures released by the Bureau of Economic Analysis on Thursday. In the two months since the U.S. war with Iran started and gasoline prices began surging, spending is up 1.49 percent. That annualizes to a gain of 9.3 percent. Compared with one year ago, consumers are spending 3.9 percent more.

While it is true that the 25 percent rise in prices in March and April played a significant role in pushing up spending, this only highlights consumer resiliency. Many economists expected that Americans would be forced to pull back on other spending because they were spending so much to fill up their gas tanks. That has not happened.

Take a look at the broad spending categories covered by the PCE release. Durable goods spending rose 1.7 percent over March and April, an annualized gain of 10.7 percent. Compared with April of last year, Americans spent 3.2 percent more on durable goods.

Spending on motor vehicles on parts rose 2.2 percent, or an annualized 14.1 percent, even accounting for a small decline in April. Furnishings and durable household equipment dipped slightly in April, but they are up 1.19 percent over the two-month window, an annualized gain of 7.4 percent.

Discretionary categories, where we would expect to see a retreat if consumers were truly being squeezed, are instead advancing solidly. Recreational services spending rose 1.9 percent during the two-month window, an annualized gain of 12 percent. Food services and accommodations climbed 0.95 percent for the month, which annualizes to 5.8 percent.