U.S. consumers held their spending steady in July as lower gasoline prices allowed them to buy other goods, and that will weigh in the balance when it comes time for the central bank to make another round of monetary screw in September. Total spending by U.S. households on stores, gas stations, bars and restaurants was $682.8 billion in July, the same as June, according to Commerce Department data released Wednesday. .
However, this is a little less than the timid rise of +0.1% which was expected by analysts, according to the MarketWatch consensus. “The retail sales base remains strong,” commented economist Kathy Bostjancic of Oxford Economics. “People seem to have used some of the savings from lower gas prices to spend more on other items,” Ian Shepherdson of Pantheon Macroeconomics said in a note. Overall, retail sales are up 0.7%. These figures take into account the total amount of expenditure, but are not adjusted for inflation, which means that, for the same amount spent, households left with a less loaded basket.
Inflation slowed in July, to 8.5% over one year, and is even zero over one month. But it remains very high, close to 9.1% in June, a record for more than 40 years. Services had been neglected since the start of the pandemic in favor of goods, but, as the health situation improves, they “will continue to be an engine of consumption growth, as consumers resume more of their spending on services from before the pandemic, especially restaurants and travel”, anticipates Kathy Bostjancic. Faced with this inflation, consumers are changing their habits.
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The Fed remains in ambush
Retail sales are an indicator that is closely watched by the US central bank (Fed), which is trying to slow down high inflation by raising its key rates to increase the cost of credit for individuals and professionals. The goal: to slow consumption and therefore lower the pressure on prices. At its next meeting, on September 20 and 21, the institution is expected to raise its key rates again, and these consumption figures point to a further sharp increase, according to Kathy Bostjancic.
Minutes from the Fed’s last meeting, July 26-27, were released on Wednesday, and showed that central bank officials plan to continue raising rates, but believe it will be necessary, ” at some point”, to slow down the pace. They also spoke of the “risk that (the Fed) could tighten its policy more than necessary”, and stressed that slowing down inflation “will certainly take time”, according to these “minutes”.
The Fed wants to bring inflation back to around 2%, a level considered healthy for the economy. However, it favors another measure of inflation, the PCE index, whose July figure has not yet been published. The labor market remains very dynamic, and the unemployment rate fell in July to 3.5%, as in February 2020, when it was at its lowest in 50 years. The total number of jobs in the country has also returned to its pre-pandemic level.
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