Increased US Consumer Spending in August

By Prachi Makkar,
Money and Investing Writer

With the recent volatile market, people are looking towards consumers to spend more to help the US economy move through slow global growth.

With unemployment down, steady new hires, and minimum wage up, consumers have increased their spending which in turn is helping the US economy.

Personal Spending is defined as a measure of how much consumers spend on everything from personal care to retail to appliances to food.

American consumers are pushing through the volatility of the market and continuing to spend.

According to the Commerce Department, U.S. personal spending increased 0.4 percent.

Consumption rose 0.4 percent in July and 0.3 percent in June, not adjusted for inflation.

Americans’ pretax earnings from investments and salaries climbed 0.3 percent in August.

To cope with recent financial turbulence and worrisome reports about growth in the global market, specifically China, consumer spending is key.

Currently, spending has found a good flow and is at a positive place.

Two-thirds of the gross domestic product, broad measure of overall output, is accounted as personal consumption.
Spending moves with holidays, seasons, wages, and employment.

It slowed down towards the end of the winter season but, picked back up in the spring which helped GDP growth accelerate during the second quarter of the year to 3.9 percent seasonally adjusted annual rate.

With unemployment down and wages up, it is expected that consumer spending will stay at a post-recession norm of slightly above 2 percent.

For the third quarter GDP, some major financial institutions and economists raised their estimates.

Barclays went from saying that the economy is tracking 2.2 percent growth to 2.4 percent.

Morgan Stanley said 2.9 percent from their original estimate of 2.2 percent and J.P. Morgan Chase kept their forecast at 2 percent.

But, this all depends on hiring, new jobs, and income growth.

Economists are predicting a net gain of 0.2 percent for average hourly earnings and a gain of 200,000 jobs.

Along with the factors discussed before, prices of everyday items also effect spending.

Gas prices have been down recently, giving consumers more money in their pockets that they can spend on other good.

The August personal savings rate was down to 4.6 percent from a recent high of 5.4 percent this year.

Real disposable income, income after taxes adjusted for inflation, is at a record high.

The Federal Reserve is watching the domestic economy closely.

They did not touch the near zero interest rates earlier this month because of global economic uncertainty.

Janet Yellen said that they want to evaluate likely impacts on the US and watch the financial markets closely.

Another item of concern is persistently weak inflation.

The Central Bank’s preferred inflation gauge is the price index for personal consumption expenditures and it was flat from July and increased by a mere 0.3 percent from the previous year.

Ignoring food and energy costs, core prices rose 0.1 percent from July and are up 1.3 percent than last year.

August was the 40th consecutive month where prices fell short of the 2 percent annual target the Fed has.

All they can do right now is hope that consumer spending stays where it is right now or continues to grow.

A version of this article appeared in the Tuesday, October 20th print edition.

Contact Prachi at
prachi.makkar@student.shu.edu

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