- Consumer spending increased by 0.2% in May
- Inflation-adjusted consumer spending down 0.4%
- The main PCE price index rose by 0.3%; increases by 4.7% on an annual basis
- Weekly unemployment applications fell from 2,000 to 231,000
WASHINGTON, June 30 (Reuters) – Consumer spending in the United States rose less than expected in May as motor vehicles remained scarce, while higher prices forced cuts in other goods, another sign that economic growth was recovering. at the beginning of the second quarter loses strength.
Although the Commerce Department’s report Thursday suggested inflation is likely to have peaked, price pressures remain strong enough to keep the Federal Reserve on the path of aggressive monetary tightening. However, Fed employees should welcome the demand for cooling.
Rising interest rates and difficult financial conditions are causing fears of a recession, but economic data so far show moderate growth. New claims for unemployment benefits continued to decline last week, despite cuts in the technology and housing sectors, other data showed on Thursday.
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“The Fed has not yet won the war on inflation, but there are some encouraging signs that the economy is slowing,” said Christopher Rupki, chief economist at FWDBONDS in New York. “Despite fears of a recession, job cuts have not reached levels high enough to call for the economy to move above the scale in the depths of the recession.”
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.2 percent in May, the lowest increase in five months. April data were revised downwards to show an increase in spending of 0.6% instead of 0.9%, as previously reported.
There were also downward revisions to January data, showing a softer growth profile for spending this year.
Expenditure on goods intended to last three or more years decreased by 3.2% attracted by motor vehicles. Purchases of furniture and durable household appliances are also declining, as are leisure goods and vehicles. This partially offset the 0.7% increase in services due to housing and communal services, as well as healthcare and international travel.
Economists polled by Reuters predicted that consumer spending would rise by 0.4%. The report combines data on housing start-ups, building permits and manufacturing production, suggesting that the economy is struggling to pick up after gross domestic product fell 1.6% year-on-year in the first quarter.
Shares on Wall Street were lower. The dollar was stable against a basket of currencies. US government bond prices have risen.
INFLATION has peaked
The US Federal Reserve raised its interest rate by three quarters of a percentage point this month, its biggest increase since 1994. The Fed increased its base overnight interest rate by 150 basis points since March.
Inflation maintained its upward trend in May. The Consumer Price Index (PCE) rose 0.6% last month after rising 0.2% in April. In the 12 months to May, the PCE price index rose 6.3% after a similar increase in April. This is due to higher prices of goods and services.
But the main price pressure is beginning to decrease. Excluding volatile food and energy components, the PCE price index rose 0.3% for the fourth consecutive month.
The so-called core PCE price index rose 4.7% year-on-year in May, the smallest increase since last November, after rising 4.9% in April. PCE price indices are the Fed’s preferred measure for its 2% inflation target.
PCE price indices are lower than the consumer price index, which rose 8.6% year on year in May as they carry less weight for rapidly rising rental housing. While health care has a greater weight in PCE measures, legal cuts in Medicare payments have reduced the cost of medical services. They have also benefited from lower financial services costs amid falling asset prices.
“Data for June and July could also show a similar soft PCE compared to the CPI, but we expect the Fed will need to see evidence of slowing inflationary pressures in a number of data before slowing the pace of interest rates,” said Veronica Clark. economist. at Citigroup in New York.
Inflation-adjusted consumer spending fell 0.4% in May, the first drop since December. This, together with the strong stockpiling in the first quarter, especially in convenience stores, poses a risk of declining economic growth in the second quarter. Growth forecasts for this quarter range from 0.3% to 2.9%.
But in a tight labor market that generates solid increases in wages and household savings are still sufficient, moderate nominal costs supported by services are expected to prevail. This should help limit job losses.
Wages increased by 0.5% in May, contributing to a 0.5% increase in personal income. The savings rate rose to 5.4%, the first increase this year, from 5.2% in April.
A separate report from the Ministry of Labor shows that initial claims for state unemployment benefits fell by 2,000 to seasonally adjusted 231,000 for the week ended June 25.
“Because service delivery is disproportionately more jobs than goods production, the job market is pretty strong,” said Bill Adams, chief economist at Comerica Bank in Dallas. “This suppresses the self-imposed shift from lower costs to job cuts to lower incomes and even lower costs.
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Report by Lucia Muticani; Edited by Nick Zieminski and David Gregorio
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