US consumer spending exceeded expectations in August; inflation is increasing
WASHINGTON, Oct. 1 (Reuters) – US consumer spending rose more than expected in August, but a downward revision to July data kept expectations of slower economic growth in the third quarter intact , as a resurgence of COVID-19 infections has dampened demand for services.
The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rebounded 0.8% in August, ignoring the drop in motor vehicle sales caused by a global semiconductor shortage, which is undermining auto production. .
Data for July has been revised down to show spending slipping 0.1% instead of gaining 0.3% as previously reported. Economists polled by Reuters predicted a 0.6% increase in consumer spending in August. Spending was likely boosted by back-to-school purchases and government child tax credit payments.
Although spending is shifting back to goods services, the surge in coronavirus cases in the summer, driven by the Delta variant, has reduced demand for air travel and hotel accommodation as well as sales in restaurants and hotels. bars.
Services represent the bulk of consumer spending. Growth in consumer spending is expected to slow sharply in the third quarter and gain strength for the remainder of the year.
Infections are on the decline, which is already leading to increased demand for travel and other high contact services.
Consumer spending grew at a robust annualized rate of 12.0% in the second quarter, accounting for much of the economy’s growth pace of 6.7%, which pushed the level of gross domestic product to the above its peak in the fourth quarter of 2019. Growth estimates for the third quarter. are less than a rate of 5.0%.
“Consumer dynamics are expected to improve in the coming months, bringing the economy closer to a full post-pandemic recovery and keeping inflation high,” said David Kelly, chief global strategist at JPMorgan Funds in New York.
Inflation continued its upward trend in August. The personal consumption expenditure price index (PCE), excluding the volatile components of food and energy, rose 0.3% after increasing by the same margin in July.
In the 12 months to August, the so-called core PCE price index rose 3.6%, matching July’s gain.
The core PCE price index is the Federal Reserve’s preferred inflation measure for its flexible target of 2%. The Fed last week raised its core PCE inflation projection for this year to 3.7% from 3.0% in June.
The US central bank has said it will likely start cutting its monthly bond purchases as early as November and signaled that interest rate hikes could follow sooner than expected.
Fed Chairman Jerome Powell told lawmakers on Thursday he expected some relief from high inflation in the coming months.
Reporting by Lucia Mutikani Editing by Chizu Nomiyama
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