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Strong consumer spending underpins the US economy



WASHINGTON: US consumer spending rose solidly in July when households bought a range of goods and services, which may further reduce fears of the financial market for a recession, but the strong rate of consumption is unlikely to be sustained amid faint revenue gains. [19659002] The report from the Department of Commerce on Friday (August 30) added trade and commodity data for July by suggesting that while the economy was declining, it did not quickly lose its height for now.

But the risk of the longest economic expansion in history is increasing, mostly from a years-long US-China trade war.

The trade battle between the two economic giants has led the financial markets to have an inversion of the US yield curve, which has stoked fears that economic expansion now in its 11th year is in danger of being interrupted of a recession.

Consumption expenditures, which account for more than two-thirds of U's economic activity, rose 0.6 percent last month after an unannounced gain of 0.3 percent in June. Economists polled by Reuters had predicted consumer spending rose 0.5 percent last month.

The economy is rapidly losing pace as the White House stimulus $ 1.5 trillion tax cut package and a state budget blitz fade. The US-China trade conflict has weighed heavily on industrial and business investment, which contracted in the second quarter.

Given the trade war-driven weakness in business investment and industry, and slowing global growth as well as sustained low domestic inflation, the Federal Reserve is expected to cut interest rates again next month.

Fed Governor Jerome Powell said last week that the economy was in a "favorable position", but reiterated that the US central bank would "act as appropriate" to keep economic expansion on track. The Fed cut its short-term interest rate by 25 basis points last month for the first time since 2008, citing trade tensions and slowing global growth.

US financial markets were little moved by the data.

Consumer prices measured by personal consumer spending (PCE) rose by 0.2 percent in July as The fall in food costs was offset by an increase in energy products and services The PCE price index rose 0.1 percent in June.

In the 12 months through July, the PCE price index rose 1.4 percent after gaining 1.3 percent in June.

Excluding the volatile food and energy components, the PCE price index rose 0.2 per cent last month, which corresponds to June's increase, keeping the annual increase in the so-called core PC The e-price index of 1.6 per cent in July.

The core PCE index is the Fed's preferred inflation target and has underestimated the US central bank's target of 2 percent this year. [19659002] When adjusted for inflation, consumer spending rose 0.4 percent in July. This so-called real consumer spending rose 0.2 per cent in June. Last month's jump in consumer spending suggested that consumption remained strong early in the third quarter after rising at its fastest pace of 4.5 years in the second quarter.

The economy grew at an annual rate of 2.0 percent in the second quarter, declining from January to March quarter at a rapid rate of 3.1 percent. Growth estimates for the third quarter range from 1.5 percent to 2.3 percent.

Last month, consumption of goods increased 0.9 percent, driven by outlays for leisure goods and motor vehicles. Expenditure on services increased by 0.5 per cent.

Consumer spending in July was supported by savings as personal income rose 0.1 percent, the smallest increase since September last year. This was followed by an increase of 0.5 per cent in June.

Wages increased 0.2 percent and personal interest income fell 1.8 percent. The savings fell to $ 1.27 trillion, the lowest level since November 2018, from $ 1.32 trillion in June.


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