Autos Restrain US Consumer Spending, Monthly Inflation Slows – .

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Autos Restrain US Consumer Spending, Monthly Inflation Slows – .


  • Consumer spending rose 0.3% in July; June revised upwards
  • Personal income jumped 1.1%; the savings rate increases to 9.6%
  • Core PCE price index climbs 0.3%; up 3.6% year on year
  • The merchandise trade deficit narrows by 6.2%; stocks are increasing

WASHINGTON, Aug.27 (Reuters) – Consumer spending in the United States slowed in July as lower motor vehicle purchases due to shortages offset an increase in spending on services, confirming the view that growth The economy will moderate in the third quarter amid a resurgence of COVID-19 infections.

But the fundamentals of the recovery remain strong, with the Commerce Department report on Friday showing rising wages and increasing savings for Americans. Inflation appears to have peaked, which could preserve household purchasing power. Businesses are also restocking and exporting more merchandise, suggesting that a slowdown in growth this quarter may be temporary.

“There are clear risks of lower spending if more events and trips are canceled and more product is delayed on shelves,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “But it’s a bit early to throw in the towel on the economic outlook given favorable trends in wages and savings and a likely boost in business investment, stocks and trade in the third quarter. “

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3% last month after advancing 1.1% in June. Last month’s increase was in line with economists’ expectations.

Demand is shifting back to services like travel and recreation, but spending has been insufficient to compensate for lower purchases of goods, which are also affected by shortages.

Spending on goods fell 1.1% last month, led by motor vehicles. A global semiconductor shortage is hampering automotive production. There were also declines in spending on leisure items as well as clothing and footwear. Yet spending on goods is 20% above their pre-pandemic level.

Spending on services increased 1.0%, a general increase led by food services and accommodation. Spending on services last month was 1% above its February 2020 level. Healthcare, transportation and recreation have yet to recoup their pandemic losses.

Credit card data suggests spending on services such as airline tickets and cruises as well as hotels and motels slowed in August amid the surge in COVID-19 cases driven by the Delta variant.

Fears about the virus pushed consumer confidence to a low of more than 9.5 years in August.

Personal consumption

Inflation continued to rise in the past month, fueled by continued supply constraints and the economy returning to normal after the upheaval caused by the pandemic. But the pace of the increase is slowing.

The personal consumption expenditure price index (PCE), excluding the volatile components of food and energy, rose 0.3% in July. This was the smallest gain in five months and followed a 0.5% gain in June. In the 12 months to 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 target of 2%.

Fed Chairman Jerome Powell in a speech at the Jackson Hole economic conference on Friday defended his long-held view that high inflation is transitory. Powell said the economy continued to move towards the US central bank’s benchmarks to reduce its massive support, but did not indicate the timing of any policy changes. Read more

Powell’s comments supported US stocks, with the S&P 500 (.SPX) and Nasdaq (.IXIC) hitting record highs.

The dollar fell against a basket of currencies. US Treasury prices have gone up.

Shoppers carry bags of purchased merchandise at King of Prussia Mall, the largest retail space in the United States, in King of Prussia, Pennsylvania, United States, December 8, 2018. REUTERS / Mark Makela / File Photo

Inflation

INCOME, SAVINGS ON THE RISE

High inflation slashed consumer spending last month. Inflation-adjusted consumer spending fell 0.1%. So-called real consumer spending rose 0.5% in June. Real consumer spending is slightly above the second quarter average.

“Spending growth in the current quarter is still well below the 11.6% annualized rate of the first half of the year, but at least it’s starting in positive territory,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey. City. .

The Atlanta Fed lowered its estimate of third-quarter GDP growth to 5.1% from 5.7%. The resurgence of COVID-19 cases, which is global, could cause more disruption to supply.

The economy grew at a pace of 6.6% in the second quarter, raising the level of gross domestic product above its peak in the fourth quarter of 2019.

But the drag from the slowdown in consumer spending this quarter will likely be limited by the narrowing of the trade deficit and the restocking of depleted stocks by businesses.

In another report released Friday, the Commerce Department said the merchandise trade deficit narrowed 6.2% to $ 86.4 billion last month as imports declined and exports increased.

Inventories at retailers rose 0.4%, while inventories of goods at wholesalers rose 0.6%.

Trade balance

Overall, the economy remains supported by record corporate profits. Households accumulated at least $ 2.5 trillion in excess savings during the pandemic. Growth is expected to accelerate in the fourth quarter, in part due to inventory build-up.

The savings rate rose to 9.6% last month from 8.8% in June, as part of the money the government paid under the child tax credit program to eligible households has been exhausted. Personal income jumped 1.1% after gaining 0.2% in June.

Wages also rose as businesses vie for scarce labor, rising 1.0% in July. Income available to households after accounting for inflation rebounded 0.7% after three consecutive monthly declines.

Household wealth is also reinforced by high stock prices and acceleration in house prices.

“The overall position of the household sector is strong and consumers have great purchasing power,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

Reportage de Lucia Mutikani; Montage by Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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