Rebound In US Consumer Spending But Inflation Is Eroding Demand
During August, an uptick in US consumer spending was witnessed, but high inflation and high-interest rates are slowing down the demand. That's why experts believe that the chance of an economic rebound during the 3rd or even 4th quarter will be highly unlikely.
The Commerce Department report also confirmed that the inflation pressure has been building up over the last few months. This became clear when the central bank (FED) increased the interest rate for 3rd time in a row. It's been years since the FED acted so aggressively, which further highlights the gravity of the current situation.
Household Spending Experiencing Momentum Loss
Data from the recent release confirms that household spending is losing momentum. And when we look at more rate hikes in the near future, it becomes apparent that the growth and consumption will remain depressed.
Consumer spending accounts for almost 33% of the economic activity in the USA (United States of America). So in simple words, a decrease or slowdown in household spending will also slow down the US economy as a whole. A look at the recent GDP reading from the USA also confirmed the same!
Experts believe that the recent minor uptick in household spending is due to higher energy prices. After the drop in energy prices, especially gasoline, people had more money to spend on traveling. Spending on goods and items dropped by around 0.5%, which was also caused by lower gasoline prices.
Another interesting fact is that spending is now moving towards services which are causing a slowdown in goods spending.
Drop In Gasoline Prices
Overall, the prices of gasoline dropped by around 11.8% to around $3.691/gallon during the month of August. Similarly, the PCE index dipped around 0.1% during July to increase by 0.3% in the last month.
For now, Fed is planning to achieve its target of 2% inflation, but the current inflation rates in the USA are making it a rather troublesome goal to achieve!