(Bloomberg) — US consumer spending — the economy’s main engine — has lost steam for most of this year, portending weaker growth ahead while also helping to cool inflation.
Inflation-adjusted spending was little changed in May and has essentially stalled since surging in the first month of 2023, according to Bureau of Economic Analysis figures published Friday. That may help to ease price pressures further after one of the Federal Reserve’s preferred inflation metrics fell last month to the lowest level in more than two years.
On the heels of data out Thursday that showed US gross domestic product was revised up notably in the first quarter, due in part to better-than-expected spending, Friday’s figures set the economy up for a substantial slowdown.
“We had already expected a slowing in second-quarter spending,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note to clients. “It now appears that we may need to cut our own forecast in half.”
Weakness in consumer spending contrasts with recent data that have otherwise painted a picture of a resilient economy rather than one on the brink of recession. That’s been in large part due to the ongoing strength of the job market.
Solid advances in jobs and wages, which have bolstered the economy through over a year of interest-rate hikes, have been at the center of the Fed’s messaging that rates may need to go even higher to ultimately tame inflation. Even though Friday’s figures showed spending and inflation cooled, they still may not be enough to dissuade officials from more tightening, Rubeela Farooqi, chief US economist at High Frequency Economics, said in a note.
“For the Fed, a moderation in consumption will be welcome news, as will a deceleration in inflation,” Farooqi said. “However, these developments are not likely to change the very near-term path of policy, with policymakers committed to the view that rates need to rise further, to a more restrictive stance.”
The decrease in real spending on goods largely reflected a drop in purchases of motor vehicles, the report showed. Services spending increased on firmer outlays for international travel and transportation.
Consumers are also saving at one of the highest rates since early last year, which could signal additional caution going forward.
Inflation Easing
The personal consumption expenditures price index rose 0.1% in May, Commerce Department figures showed Friday. From a year ago, the measure eased to 3.8%, the slowest pace in more than two years.
Under the hood of the government report, a key price metric flagged by Fed Chair Jerome Powell showed a welcome slowdown. Services inflation excluding housing and energy services increased 0.2% in May from a month earlier, the smallest advance since July of last year, according to Bloomberg calculations. The figure was up 4.5% from a year ago.
Treasuries and the S&P 500 rallied after the report, though traders still expect the Fed to resume hiking interest rates at next month’s meeting, according to futures contracts.
What Bloomberg Economics Says…
“May’s personal income and outlays data show the relationship between income growth and inflation loosening incrementally. That makes us skeptical the Fed will need to hike rates by the full 50 basis points shown in the latest dot plot.”
— Stuart Paul, Eliza Winger and Jonathan Church
To read the full note, click here
While Friday’s numbers suggest that rates may not need to go as high as many Fed policymakers forecast, there’s still plenty of data between now and the central bank’s July meeting that could shape their thinking. The June jobs report, out next week, is expected to show still-strong hiring and low unemployment, and officials will also see updated readings on consumer and producer prices as well as retail sales in the coming weeks.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
