Mon. Oct 18th, 2021

As more places reopen and people get COVID-19 bumps, consumers confidently spend money at restaurants and shops.

US personal spending accelerated more than expected in June, reflecting an increase in spending on services, while a tight inflation rate continues to rise.

Purchases of goods and services rose 1% from a month earlier, after a 0.1% downward revision in May, figures from the Department of Commerce showed on Friday. The personal consumption spending price gauge, which the Federal Reserve uses for its inflation target, rose 0.5% for a second month.

Thanks to vaccinations and a greater reopening of the economy, consumers have the confidence and ability to spend money on services such as dining out and goods. With the spending of goods well above pre-pandemic levels, spending has increasingly shifted to the pandemic-ravaged services sector.

The average estimate in a Bloomberg survey among economists required a monthly increase in total spending of 0.7%.

The rapid fall in demand has outstripped supply, with businesses struggling to fill vacancies and procure the necessary materials for production. These restrictions increased prices and affected the purchasing power of Americans.

Because the labor market has not yet fully recovered, Fed Chairman Jerome Powell said there is still some way to go to reduce financial support for the economy.

Wage gains

Revenue rose 0.1% in June after two straight declines. Meanwhile, wages and salaries rose by 0.8%, reflecting both rising salaries and an improvement in the labor market.

The savings rate dropped to a pandemic low of 9.4% and close to the 8.3% seen in February 2020, before the health crisis. The figure shows that income and spending patterns are normalizing as the service sector reopens and government aid declines.

A separate report on service costs on Friday showed that wages in the private sector rose by 3.5% from the second quarter of last year, the largest increase since 2007.

The overall PCE price index rose by 4% compared to June last year. If we adjust inflation, spending rose 0.5% last month after falling in May.

Inflation-adjusted expenditure on services rose by 0.8%, the fourth decline, while real expenditure on goods fell by 0.2% in June.

The shift to spending on services was evidenced in the latest earnings report from United Parcel Service Inc. UPS shares withdrew this week due to concerns that the upswing could slow down.

The core price index, which excludes food and energy, rose 0.4% from a month earlier. The meter increased by 3.5% by June 2020, the largest annual profit since 1991.

“Inflation has increased significantly and is likely to remain high in the coming months before moderating,” Powell said Wednesday. ‘As the reopening continues, bottlenecks, rental problems and other constraints could adjust the pace of supply, increasing the possibility that inflation may be higher and more persistent than we expect.

The figures come just a day after the government’s preliminary estimate of gross domestic product in the second quarter. While GDP growth exceeded expectations, consumption spending rose by 11.8% per year, one of the strongest pace in decades.

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