U.S. consumers increased their spending last month by 1.9%, a dose of support for an economy struggling to emerge from the grip of a pandemic that has recovered and left roughly 27 million people unemployed.
The July gain marked the third straight monthly increase in consumer spending, the primary driver of the U.S. economy, but represented a slowdown from the previous two months. Friday’s report from the Department of Commerce also showed that revenue rose 0.4% in July after two-month declines.
The Consumer Expenditure Report comes amid a hazy economic landscape, with high unemployment, struggling businesses and deep uncertainty about when the health crisis will be resolved and when people and businesses will feel confident enough to spend and rent normally again. It also comes weeks after the expiration of a $ 600 a week federal unemployment benefit robbed millions of a major source of income and dimmed the outlook for consumer spending.
The economy is likely to expand again after a catastrophic fall in the April-June quarter. Home and car sales were strong. Stock prices have set record highs.
A persistently high level of confirmed viral cases has harmed several industries, particularly those involved in travel, tourism and entertainment, and is holding back growth. On Thursday, the government announced that roughly 1 million people applied for unemployment benefits last week – a historically high level that has overcome weeks.
The Conference Board, a business research group, reported this week that consumer confidence has fallen to its lowest level since 2014. And in the survey results released this week by the National Association for Business Economics, two-thirds said of the economists surveyed that they thought the economy would remain in recession. Nearly half said they did not expect it to return to pre-pandemic levels by mid-2022.
Following the adoption of a massive financial rescue package in March, Congress Republicans and Democrats are unanimous in agreeing to allocate more aid to the unemployed and to warring states and locations. The expiration of the federal unemployment benefit of $ 600 per week leaves some families desperate. Economists say the loss of that aid has also deprived the economy of a significant pool of spending money.
On August 8, President Donald Trump signed an executive order offering a revamped version of the extended unemployment benefit. At least 39 states have accepted or said they would apply for federal subsidies that could increase their weekly benefits by $ 300 or $ 400. But it is unclear how quickly that money actually gets in people or how long it takes.
On Thursday, the Federal Reserve announced a major change in how it manages interest rates by saying it plans to keep rates close to zero, even after inflation has reached its target level of 2% above. The change means that lending rates for households and businesses – for everything from car loans and mortgages to homes to business expansion – are likely to remain ultra-low in the coming years.
Behind the Fed’s new thinking is a headline of low inflation that has long challenged the Fed’s efforts to increase it and a belief that a very low unemployment rate is critically important to the economy and to individual Americans.
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