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Business News/ Economy / US consumer spending slows in July; monthly inflation moderates
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US consumer spending slows in July; monthly inflation moderates

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3% last month, the Commerce Department said on Friday. Data for June was revised up to show spending advancing 1.1% instead of 1.0% as previously reported

Inflation continued to heat up in July, fanned by the unrelenting supply constraints and the economy's move toward normalcy after the upheaval caused by the pandemic. (Bloomberg)Premium
Inflation continued to heat up in July, fanned by the unrelenting supply constraints and the economy's move toward normalcy after the upheaval caused by the pandemic. (Bloomberg)

U.S. consumer spending slowed in July as shortages of motor vehicles tempered a rise in outlays on in-person services, supporting views that economic growth will moderate in the third quarter amid a resurgence in COVID-19 infections.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3% last month, the Commerce Department said on Friday. Data for June was revised up to show spending advancing 1.1% instead of 1.0% as previously reported.

Economists polled by Reuters had forecast consumer spending climbing 0.3%. Demand is rotating back to services like travel and leisure, but spending has not been sufficient to compensate for the drop in goods, whose purchases are also being impacted by shortages, especially of motor vehicles.

Credit card data suggests spending on services like airfares and cruises as well as hotels and motels has been slowing this month, a sign of caution among some Americans amid soaring COVID-19 cases driven by the Delta variant.

The government reported on Thursday that consumer spending grew at a robust 11.9% annualized rate in the second quarter, accounting for much of the economy's 6.6% growth pace, which raised the level of gross domestic product above its peak in the fourth quarter of 2019.

Inflation continued to heat up in July, fanned by the unrelenting supply constraints and the economy's move toward normalcy after the upheaval caused by the pandemic.

There are signs, however, that inflation has either peaked or is close to doing so.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, gained 0.3% in July after advancing 0.5% in June. In the 12 months through July, the so-called core PCE price index rose 3.6% after a similar increase in June.

The core PCE price index is the Federal Reserve's preferred inflation measure for its flexible 2% target.

Fed Chair Jerome Powell's highly anticipated speech to the Jackson Hole economic conference on Friday will be gleaned for clues on when the U.S. central bank's will start scaling back its $120 billion in monthly bond purchases.

Powell has maintained that high inflation, which is eating into spending, will be transitory.

Prices pressures, together with rising coronavirus infections last week prompted economists at Goldman Sachs to cut their growth estimate for the third quarter to a 5.5% rate from a 9% pace. Bank of America Securities slashed its GDP growth estimate for this quarter to a 4.5% pace from a 7.0% rate.

Still, the economy remains supported by record corporate profits. Households accumulated at least $2.5 trillion in excess savings during the pandemic. Record high stock market prices and accelerating home prices are boosting household wealth. Wages are also rising as companies compete for scarce workers. 

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Published: 27 Aug 2021, 06:41 PM IST
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