U.S. consumer spending rose a moderate 1.9% in July
U.S. consumers increased their spending by 1.9% last month, a dose of support for an economy struggling to emerge from the grip of a pandemic that has held back a recovery and kept roughly 27 million people jobless.
The July gain marked the third straight monthly increase in spending, the primary driver of the U.S. economy, but represented a slowdown from the previous two months. Friday’s Commerce Department report also showed that income rose 0.4% in July after two months of declines.
The report arrives amid a hazy economic landscape, with high unemployment, struggling businesses and deep uncertainty about when the health crisis will be solved and when people and companies will feel confident enough to spend and hire normally again. It also comes weeks after the expiration of a $600-a-week federal unemployment benefit deprived millions of a key source of income and dimmed the outlook for consumer spending.
Real-time tracking data from JPMorgan Chase shows that credit and debit card spending had softened by early this month in states with high unemployment compared with states with lower unemployment. But Chase economists said they saw little sign that the expiration of the $600 benefit has so far caused any major economic setback. .
But economists have warned of more severe consequences if Congress fails to resolve a political impasse and reinstate federal unemployment benefits.
“The steep decline in federal support for unemployed workers and heightened uncertainty will depress consumer confidence and spending and weigh on the broader economic recovery,” said Lydia Boussour, senior U.S. economist at Oxford Economics.
After enacting a massive financial rescue package in March, congressional Republicans and Democrats have failed to agree on allocating more aid to the unemployed and to struggling states and localities. President Donald Trump signed an executive order offering a stripped-down version of the unemployment benefit. At least 39 states have accepted or said that they would apply for federal grants that let them increase weekly benefits by $300 or $400. But it’s unclear how soon that money will actually get to people or how long it will last.
In the meantime, the economy, after a catastrophic fall in the AprilJune quarter, is likely expanding again. Home and auto sales have been strong. Stock prices have set record highs.
But a persistently high level of confirmed viral cases has damaged several industries, especially those involved with travel, tourism and entertainment, and is holding back growth.