New government data shows that U.S. consumer spending in July grew 0.3 percent, a much slower pace than the 1.1 percent growth rate from the previous month and a sign that the economic recovery it could be losing strength in the third quarter as a Delta variant. spreads.
The Commerce Department said in a statement Friday that consumer spending, which accounts for about two-thirds of U.S. economic growth, rose $ 42.2 billion in July, or a modest 0.3% during the month. A separate sentiment gauge from the University of Michigan showed that American consumer confidence fell sharply in August.
Still, the groundwork for economic recovery appears solid, with the Commerce Department report showing rising wages and rising savings, giving U.S. consumers greater spending potential for unlock in the future, even as the rise of infections cloud the outlook.
“There are clear downside risks to spending if more events and trips are canceled and more products are delayed to reach the shelves,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Reuters. “But it’s a bit early to throw in the towel on the economic outlook given support and wage savings trends and a likely boost in business investment, inventories and trade in the third quarter.”
In addition to the resurgence of the pandemic, another cloud on the recovery horizon is a sharp drop in consumer sentiment. The University of Michigan Consumer Sentiment Index fell to 70.3 in August, the lowest level since 2011.
“Extreme consumer reactions were due to the growing Delta variant, higher inflation, slower wage growth and lower unemployment,” said Richard Curtin, director of the survey, in a statement. communiqué. “The extraordinary drop in sentiment also reflects an emotional response, from hopes that the pandemic will end soon and lives can return to normal.”
Along with falling spending and falling sentiment, inflationary pressures eased somewhat in July. The price index of basic personal consumption expenditure (PCE), the Fed’s preferred inflation indicator for calibrating monetary policy, rose 0.3 percent in July, after rising 0.5 percent. one hundred in June and 0.6 percent in May, suggesting that inflation will have peaked and will now begin to soften: a view held by Federal Reserve officials.
Fed Chairman Jerome Powell said Friday in a speech that while there has been a “strong intensity” of inflation, there are indications that it is moderating.
“Inflation at these levels is, of course, a cause for concern. But this concern is mitigated by several factors that suggest these high readings are likely to be temporary, “he said, arguing that the current rise in inflation is mainly due to a relatively narrow group of goods and services that have been directly affected. due to the pandemic and the reopening of the economy, effects that “should disappear over time.”
Powell also defended the persistence of disinflationary forces such as technology and globalization, arguing that there is little evidence that they have suddenly reversed or declined, saying that “it seems more likely that they will continue to weigh on inflation as the pandemic unfolds.” the history”. “.
The Fed’s core economic outlook is for the economy to continue to move toward peak employment, with inflation coming closer to the Fed’s goal of averaging 2% over time, he said. Powell.
Although the spread of the Delta variant has led economists to cut their growth forecasts in the current quarter, analysts still believe that if COVID-19 cases fall in the last months of 2021, the country will experience its growth. stronger this year in decades.
Tom Ozimek has extensive training in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice you’ve ever heard is from Roy Peter Clark: “Hit your target” and “leave the best for last”.