US consumer spending surges; inflation hits Fed target again
NEW YORK: US consumer spending increased solidly in July, pointing to strong economic growth early in the third quarter, while a measure of underlying inflation hit the Federal Reserve’s 2per cent target for the third time this year.
Other data on Thursday showed an increase in new applications for unemployment benefits last week, but the underlying trend continued to point to a robust labour market. Strong domestic demand, rising inflation and a tightening jobs market likely will keep the US central bank on course to increase interest rates for a third time this year in September.
The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4per cent last month after advancing by the same margin in June. Households spent more at restaurants and on accommodation last month.
There was also an increase in spending on prescription medication. Economists polled by Reuters had forecast consumer spending rising 0.4per cent in July.
With demand strong last month, prices continued their gradual upward trend. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2per cent after edging up 0.1per cent in June.
That lifted the year-on-year increase in the so-called core PCE price index to 2.0per cent from 1.9per cent in June. The core PCE index is the Fed’s preferred inflation measure. It hit the US central bank’s 2per cent inflation target in March for the first time since April 2012.
Minutes of the Fed’s July 31-August 1 meeting published last week showed some policymakers worried “a prolonged period in which the economy operated beyond potential could give rise to inflationary pressures.”
The dollar was largely unchanged against a basket of currencies after the data. US stock index futures were trading lower while prices of US Treasuries were higher.
TIGHTENING LABOUR MARKET
Strong consumer spending helped fire up economic growth in the second quarter, with gross domestic product rising at a 4.2per cent annualized rate, the fastest in nearly four years and almost double the 2.2per cent pace notched in the January-March quarter.
Solid consumer spending should blunt some of the impact on the economy from an anticipated widening in the trade deficit and weakness in the housing market in the third quarter. Recent data showed a sharp rise in the goods trade deficit in July as well as further declines in home sales and a moderate rise in homebuilding last month.
Consumer spending, which grew at a 3.8per cent annualized rate in the April-June period following a pedestrian 0.5per cent pace in the first quarter, is being supported by the labor market, which is viewed as being near or at full employment. In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 213,000 for the week ended August 25, the Labor Department said on Thursday.
Other data on Thursday showed an increase in new applications for unemployment benefits last week, but the underlying trend continued to point to a robust labour market. Strong domestic demand, rising inflation and a tightening jobs market likely will keep the US central bank on course to increase interest rates for a third time this year in September.
The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4per cent last month after advancing by the same margin in June. Households spent more at restaurants and on accommodation last month.
There was also an increase in spending on prescription medication. Economists polled by Reuters had forecast consumer spending rising 0.4per cent in July.
With demand strong last month, prices continued their gradual upward trend. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2per cent after edging up 0.1per cent in June.
That lifted the year-on-year increase in the so-called core PCE price index to 2.0per cent from 1.9per cent in June. The core PCE index is the Fed’s preferred inflation measure. It hit the US central bank’s 2per cent inflation target in March for the first time since April 2012.
Minutes of the Fed’s July 31-August 1 meeting published last week showed some policymakers worried “a prolonged period in which the economy operated beyond potential could give rise to inflationary pressures.”
The dollar was largely unchanged against a basket of currencies after the data. US stock index futures were trading lower while prices of US Treasuries were higher.
TIGHTENING LABOUR MARKET
Strong consumer spending helped fire up economic growth in the second quarter, with gross domestic product rising at a 4.2per cent annualized rate, the fastest in nearly four years and almost double the 2.2per cent pace notched in the January-March quarter.
Solid consumer spending should blunt some of the impact on the economy from an anticipated widening in the trade deficit and weakness in the housing market in the third quarter. Recent data showed a sharp rise in the goods trade deficit in July as well as further declines in home sales and a moderate rise in homebuilding last month.
Consumer spending, which grew at a 3.8per cent annualized rate in the April-June period following a pedestrian 0.5per cent pace in the first quarter, is being supported by the labor market, which is viewed as being near or at full employment. In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 213,000 for the week ended August 25, the Labor Department said on Thursday.