Consumer spending in the United States of America barely rose in August likely to Hurricane Harvey, which affected auto sales just as annual inflation increased at its slowest pace since late 2015, pointing to moderation in economic growth in the third quarter.
According to Reuters, U.S commerce department said Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month also as unseasonably mild temperatures reduced demand for utilities. That followed an unrevised 0.3 percent increase in July.
Last month’s gain in consumer spending was in line with economists’ expectations. When adjusted for inflation, consumer spending slipped 0.1 percent in August, the first drop since January.
The government said the data reflected the effects of Hurricane Harvey. However, it could not separately quantify the total impact of Harvey on the data. It said it made adjustments to estimates where source data were not yet available or did not fully reflect the effects of the storm.
The report was the latest suggestion that Harvey, together with Hurricane Irma, would dent economic growth in the third quarter. The economy grew at a brisk 3.1 percent annualized rate in the second quarter, with consumers doing the heavy lifting.
Harvey, which tore through Texas in late August, has undercut industrial production, homebuilding and home sales. Further declines are expected after Irma slammed Florida in early September.
Economists estimate the storms could slice off as much as six-tenths of a percentage point from third-quarter GDP growth. However, a pick-up in output is expected in the fourth quarter as communities ravaged by the hurricanes rebuild.
Inflation remained benign last month. The personal consumption expenditures (PCE) price index excluding food and energy rose 0.1 percent. The so-called core PCE has increased by the same margin for four straight months.
As a result, the annual increase in the core PCE price index slowed to 1.3 percent after advancing 1.4 percent in July. That was the smallest year-on-year increase since November 2015. The core PCE is the Federal Reserve’s preferred inflation measure and has a 2 percent target.
The U.S. central bank signaled last week it anticipated one more interest rate increase by the end of the year. On Tuesday, Chair Janet Yellen said the Fed needed to continue gradual rate hikes despite uncertainty about the path of inflation. It has increased borrowing costs twice this year.
Frontpage December 30, 2019