Consumer spending – which accounts for 70% of U.S. gross domestic product – has softened since the beginning of the year. The drop is not fatal and could be reversed over the next 6 to 12 months, allaying the concerns expressed here.But the modest downtrend has occurred long enough to cause concern.

Weak wage growth has plagued this expansion. It was understandable when we emerged from the recession and unemployment was just under 10%.But weak wage growth is difficult to explain when unemployment is below 5%. The following chart from Ben Spielberg places this expansion’s delayed wage growth into historical context:

This expansion’s change in the lower 90% of wages and overall income has been the weakest of all post-WWII expansions.The following chart places wage growth into a historical context:

Although wage growth was weak during the first part of the Reagan, Clinton and Bush years, it picked up in the latter half of all three expansions – a pattern that has yet to occur in the latest expansion. Wages have grown 2%-3% over the last few years despite continued downward trend of unemployment. Weakening wage growth is showing up in other income measures:

Real personal income excluding current transfer receipts -a key coincident economic indicator -has been somewhat weaker for the last year.

Part of the reason for weaker wage growth could be the consistent decline in hours worked:

Or the lower employment to population ratio:

 To maintain their current pace of consumption, consumers have been dipping into their savings:

The personal savings rate, which had increased to a far healthier 5 to 6% between 2014 and 2016, has fallen to about 4% in recent for readings.

Over the last 12 months, it appears that somewhat weaker wage growth is beginning to translate into softness in some consumer spending numbers:

Auto sales bounced between a 17-18 million annual rate for about two years. Since the first of the year, this number has moved consistently lower. According to Bloomberg, auto dealers are now offering more sales incentives than any time since 2009. Retail sales have also shown modest weakness:

The monthly growth rate has been negative in six of the last thirteen months while in April and May the growth rate was less than 0.2%. And the BEA’s personal consumption expenditures have also been some slightly soft:

Durable goods spending (in red) contracted in four of the last twelve months and have been somewhat weaker in three of the last six months. Non-durable goods spending (in green) has contracted in three of the last twelve months and has been fairly weak the remainder of the time. Service spending (in purple) has also been soft.

This data is hardly fatal to the current expansion.Incomes are still growing, there are ample savings to draw on, and the pace of spending is still positive. But spending has been weaker over the last twelve months. This may or may not be a turning point - the jury is still clearly out on that. But we’ve had enough of softness to warrant continued monitoring of the situation.