August Consumer Spending In US Increases, But Households’ Buying Power Hit By Inflation

Consumer spending in the United States increased in August, but outlays were lower than previously believed when adjusted for inflation. This data supported forecasts that economic growth would stall in the third quarter as Covid-19 infections increased.

Inflation remained high in August, shoed the Commerce Department’s data on Friday, which enhanced the possibilities of a stagnation in consumer spending in the third quarter, even if there has been an acceleration of expenditure in September. Gross domestic product is calculated using inflation-adjusted consumer expenditure, often known as real consumer spending.

“Third quarter consumer spending is on track for only a scant gain,” said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina. “If COVID-19-19 cases keep falling and sentiment turns positive, there is scope for a more solid finish to this tumultuous year.”

There was a 0,8 per cent growth in August in consumer spending, which makes up more than two-thirds of all economic activity in the United States. The July data was revised downward to reflect that expenditure fell 0.1 per cent rather than rising 0.3 per cent as initially reported.

A 1.2 per cent gain in purchases of commodities bolstered consumption indicating increases in expenditure on food, home supplies, and entertainment items, which offset a dip in motor vehicle outlays. Automobile manufacture is being hampered by a global scarcity of semiconductors.

There was a decrease of 2.1 per cent in consumer expenditure in July. Housing, utilities, and health care all contributed to a 0.6 per cent increase in service spending in August.

In July, there was a 1.1 per cent growth in  services, which makes up the majority of consumer expenditure.

Data showed that consumer spending is slowing shifting back in favour of services from commodities and goods. However the surge in Covid-19 cases caused by the delta variant of the coronavirus has hampered demand for air travel, hotel accommodations, and restaurant and bar sales.

Economists forecast consumer spending growth at 0.6per cent for August.

Inflation remained on the rise in August. However price pressures are likely to have peaked. The personal consumption expenditures (PCE) price index increased by 0.3% after growing by the same percentage in July, excluding volatile food and energy components. The so-called core PCE price index climbed 3.6% in the year to August, mirroring July’s rise.

The Federal Reserve’s chosen inflation metric is the core PCE price index because of its flexible 2 per cent objective. The Fed raised its core PCE inflation forecast for this year to 3.7 per cent from 3.0 per cent in June.

The Fed will likely begin decreasing its monthly asset purchases as early as November, it said, and added that interest rate hikes might come sooner than planned. Fed Chair Jerome Powell, who has said that high inflation is temporary, told lawmakers on Thursday that he expects some respite in the coming months.

Nonetheless, inflation may remain high for some time. According to a study released on Friday by the Institute for Supply Management, businesses reported lengthier delays in receiving raw materials and paid higher costs for inputs in September.

Wall Street stocks were higher. The value of the dollar in relation to a basket of currencies dropped. Treasury prices in the United States were varied.

(Adapted from CGTN.com)



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