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Consumer spending in the United States rose sharply in July, as households bought a range of goods and services, which may dispel fears of a financial market recession, but it is unlikely that the pace of consumption will remain unchanged. sustained despite poor income gains.
PHOTO FILE: People are shopping at an H & M store during the inauguration of The Hudson Yards Complex, a residential, commercial and retail space located in West Manhattan New York, New York, USA, March 15, 2019. REUTERS / Brendan McDermid / File Photo
WASHINGTON: Consumer spending in the United States has risen sharply in July as households have bought a range of goods and services, which could allay fears of financial market recession, but it is unlikely that the sustained pace of consumption continues despite lukewarm earnings gains.
The Commerce Department report released on Friday adds July data on trade and inventories suggesting that, if the economy slowed down, it was not losing altitude quickly for the time being.
But the risks to the longest economic expansion in history are increasing, mainly because of a one-year trade war between the United States and China.
The commercial struggle between the two economic giants has scared the financial markets and caused a reversal of the US yield curve, which has fueled the fear that the economic expansion, which is in its eleventh year, may be interrupted by a recession.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.6% last month, following an unrevised gain of 0.3% in June. Economists polled by Reuters forecast an increase in consumer spending of 0.5% last month.
The economy is slowing to a large extent as the White House's $ 1.5 trillion tax reduction plan and government spending cuts erase. . The trade dispute between the United States and China weighed heavily on manufacturing and commercial investment, which contracted in the second quarter.
Given the weakness of business investment and manufacturing industry attributable to the trade war, the slowdown in global growth as well as the persistence of low inflation, the Federal Reserve should further reduce its interest rates next month.
Fed Chairman Jerome Powell said last week that the economy was at a "favorable place", while recalling that the US central bank "would do the right thing" to keep economic growth on track. The Fed lowered its short-term interest rate by 25 basis points last month for the first time since 2008, due to trade tensions and slowing global growth.
US financial markets were little affected by the data.
Consumer prices, as measured by the consumer spending index, increased 0.2% in July, as lower food costs were offset by a surge in energy goods and services. The PCE price index edged up 0.1% in June.
In the last 12 months of July, the ECP price index rose 1.4% after increasing 1.3% in June.
Excluding volatile food and energy components, the PCE price index rose 0.2% last month, matching the increase recorded in June. This kept the annual rise in the PCE base price index to 1.6% in July.
The core PCE index is the measure of inflation favored by the Fed. It is below the 2% target set by the US central bank this year.
After adjusting for inflation, consumer spending rose 0.4% in July. Real consumer spending rose 0.2% in June. The increase in consumer spending observed last month suggests that consumption remained strong at the beginning of the third quarter, after posting the largest increase in 4-1 / 2 years in the second quarter.
The economy grew at an annualized rate of 2.0% in the second quarter, which slowed from the steady pace of 3.1% observed from January to March. Growth estimates for the third quarter range from 1.5% to 2.3%.
Last month, spending on goods rose 0.9%, driven by spending on recreational goods and motor vehicles. Spending on services increased by 0.5%.
Consumer spending in July was supported by savings, as personal income edged up 0.1%, the smallest increase since last September. This followed an increase of 0.5% in June.
Wages increased by 0.2% and personal interest income decreased by 1.8%. Savings reached US $ 1.27 trillion, the lowest level since November 2018, compared to US $ 1.32 trillion in June.
(Report by Lucia Mutikani, edited by Andrea Ricci)
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