Consumer spending in the United States saw a solid increase in July, indicating a stable economic outlook for the third quarter and challenging the likelihood of a significant interest rate cut from the Federal Reserve next month.
Key Highlights:
Rise in Consumer Spending: The Commerce Department reported that consumer spending, which represents over two-thirds of US economic activity, rose by 0.5% in July, following a 0.3% increase in June. This suggests that consumer spending maintained its momentum from the second quarter, contributing to a 3.0% annualized growth rate in gross domestic product (GDP) during that period.
Moderate Inflation Growth: The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation, rose by 0.2% in July, matching expectations and following a 0.1% increase in June. Year-over-year, the PCE price index rose by 2.5%, while core inflation, which excludes volatile food and energy components, also increased by 2.6%, consistent with June's figures.
Fed's Monetary Policy Outlook: Despite the rise in consumer spending and inflation above the Federal Reserve's 2% target, inflationary pressures appear to be subsiding. Most economists expect the Fed to resist a half-percentage-point rate cut in September, as the economy remains stable. The Fed has maintained its policy rate in the 5.25%-5.50% range for over a year.
Labor Market and Economic Concerns: Concerns about the US economy persist following a rise in the unemployment rate to a near three-year high of 4.3% in July. However, the slowdown in the labor market is primarily due to reduced hiring rather than layoffs, and Fed Chair Jerome Powell recently indicated a readiness for policy adjustments if necessary.
Overall, the continued growth in consumer spending, coupled with moderate inflation, suggests a resilient US economy, albeit with some caution from the Federal Reserve on rate adjustments.
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