Consumer spending

US consumer spending rose a moderate 1.9% in July – CNBC

U.S. consumers increased their spending by 1.9% last month, a dose of support for an economy struggling to emerge from the grip of a pandemic that has held back a recovery and kept roughly 27 million people jobless.

The July gain marked the third straight monthly increase in consumer spending, the primary driver of the U.S. economy, but represented a slowdown from the previous two months. Friday’s report from the Commerce Department also showed that income rose 0.4% in July after two months of declines.

The consumer spending report arrives amid a hazy economic landscape, with high unemployment, struggling businesses and deep uncertainty about when the health crisis will be solved and when people and companies will feel confident enough to spend and hire normally again. It also comes weeks after the expiration of a $600-a-week federal unemployment benefit deprived millions of a key source of income and dimmed the outlook for consumer spending.

The economy, after a catastrophic fall in the April-June quarter, is likely expanding again. Home and auto sales have been strong. Stock prices have set record highs.

A persistently high level of confirmed viral cases has damaged several industries, especially those involved with travel, tourism and entertainment, and is holding back growth. On Thursday, the government reported that roughly 1 million people applied for unemployment benefits last week — a historically high level that has prevailed for weeks.

The Conference Board, a business research group, reported this week that consumer confidence has tumbled to its lowest level since 2014. And in survey results released this week by the National Association for Business Economics, two-thirds of economists who were polled said they thought the economy remains in recession. Nearly half said they didn’t expect it to return to pre-pandemic levels until mid-2022.

After enacting a massive financial rescue package in March, congressional Republicans and Democrats have failed to agree on allocating more aid to the unemployed and to struggling states and localities. The expiration of the $600-a-week federal jobless benefit is leaving some families desperate. Economists say the loss of that aid has also deprived the economy of a key pool of spending money.

President Donald Trump signed an executive order Aug. 8 offering a stripped-down version of the expanded unemployment benefit. At least 39 states have accepted or said that they would apply for federal grants that let them increase weekly benefits by $300 or $400. But it’s unclear how soon that money will actually get to people or how long it will last.

On Thursday, the Federal Reserve announced a major change in how it manages interest rates by saying it plans to keep rates near zero even after inflation has exceeded its 2% target level. The change means that borrowing rates for households and businesses — for everything from auto loans and home mortgages to corporate expansion — will likely remain ultra-low for years to come.

Behind the Fed’s new thinking is a stubbornly low inflation rate that has long defied the Fed’s efforts to raise it and a belief that an exceedingly low jobless rate is critically important for the economy and for individual Americans.

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Consumer spending

Consumer spending jumps 5.6% in June, but the U.S. recovery already appears to be slowing – MarketWatch

Economic Report

Incomes fall 1.1% as stimulus fades, fewer Americans return to work

A member of the staff prepares tables at a Manhattan restaurant. Consumers are spending more, but the economy is still in rough shape months after the start of the coronavirus pandemic.

Getty Images

The numbers: Americans increased spending on a variety of goods and services in June as more people returned to work after the spring business shutdowns and massive infusions of government aid flowed through the economy, but the progress appears to have waned lately after a recent spike in coronavirus cases.

Personal spending jumped 5.6% in June, the government said Friday, after a revised 8.5% advance in May.

Incomes fell 1.1% — somewhat more than expected — owing to reduced federal aid for families.

The government sent onetime stimulus checks to most families in May as part of an unprecedented effort by Washington to keep people working or provide them with more generous unemployment benefits during the worst health crisis in a century. More aid was distributed in June, just not as much.

Read:Economy suffers titanic 32.9% plunge in 2nd quarter, points to drawn-out recovery

A closely watched measure of inflation, meanwhile, matched the biggest increase in three years owing largely to higher gasoline prices. The PCE index, the Federal Reserve’s preferred inflation barometer, rose by 0.4%.

The yearly rate of inflation was quite low, however, at less than 1%.

What happened: Consumers spent more on new cars and trucks, clothing, gasoline and recreation as the economy largely reopened in June. Americans also spent more on medical care as they returned to hospitals for treatments unrelated to the coronavirus.

Still, spending is running well below pre-crisis levels with so many Americans out of work and others worried about their financial security.

Read:Jobless claims rise for second straight week as U.S. economic activity slows down

The extremely high level of savings fell to 19% from 24% in May. Households have been saving a record levels just in case the economy or their own situations take a turn for the worse.

Inflation, for its part, poses little threat to the economy right now.

Although the cost of some staples such as gas and food have risen, most companies have had to cut prices of goods and services to generate sales after a collapse in demand early in the pandemic.

Read:Consumer confidence wanes in July and points to rockier economic recovery

The rate of inflation in the past 12 months rose to 0.8% from 0.5%, according to the PCE index. Yet it’s well below January’s 1.9% pace.

A separate measure of inflation that strips out food and energy, known as the core rate, edged up 0.2% in June. It’s risen just 0.9% in the past year, however, and is sitting nearly the lowest level since the Great Recession a decade earlier.

See: MarketWatch Economic Calendar

Big picture: The reopening of the economy fueled a rebound in May and early June as millions of Americans returned to work. Yet another large outbreak of coronavirus cases sapped the recovery of momentum and a variety of measures show economic growth has waned in July.

What’s likely to determine if growth picks up again is whether Washington extends emergency unemployment benefits and other measures. They expire this week. Without more aid, economists say, the recovery is likely to lose more steam.

Read:‘A massive welfare economy’ — federal aid prevents even steeper GDP collapse

What they are saying? “The snapback in spending provides a good starting point for the third quarter,” said senior economist Sal Guatieri of BMO Capital Markets. Yet “high-frequency indicators suggest consumption slowed in July due to the partial rollback of reopenings in several states.”

“With numerous assistance programs expiring, and a mismanaged health crisis constraining spending on services, the second phase of the recovery will likely be much slower,” said chief U.S. economist Gregory Daco of Oxford Economics.

Market reaction: The Dow Jones Industrial Average

and S&P 500

were set to rise slightly in Friday trades.

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