Consumer spending barely rose last month after factoring in high inflation

Consumer spending barely rose last month after factoring in high inflation

Posted on

The numbers: Consumer spending rose a modest 0.4% in August, as Americans appeared to pocket savings from lower gas prices instead of using the extra cash on other goods and services.

Taking high inflation into account, spending rose a scant 0.1% last month. The lackluster increase suggests people are minding their money as the economy slows and higher prices raise their cost of living.

Economists polled by The Wall Street Journal had forecast a 0.3% increase in spending.

Lower gas prices have given Americans some relief from high inflation, but they are still suffering from financial distress.

The rate of consumer inflation using the so-called PCE price index has climbed 6.2% in the past year. The better known consumer price index has jumped an even sharper 8.3% in the same span.

Consumer spending drives as much as 70% of U.S. economic activity. Spending has softened up because of high inflation, and now rising interest rates are also making Americans think twice about how much to spend.

Incomes rose 0.3% in the month, the government said. Wages haven’t kept up with inflation over the past year, however, putting a further strain on households.

Big picture:  Consumers are carrying the torch for the economy, but rising interest rates threaten to extinguish the flame.

The Federal Reserve is rushing to raise the cost of borrowing to try to stamp out the highest inflation in 40 years, but in doing so, the central bank risks grinding the economy to a half and spawning the second recession in four years.

Market reaction: The Dow Jones Industrial Average

and S&P 500

were set to open higher in Friday trades. Stocks have tumbled over the past two weeks in response to rising interest rates and the growing threat of recession.

Leave a Reply

Your email address will not be published. Required fields are marked *