US consumer spending modestly up 0.6% with high inflation
WASHINGTON (AP) – U.S. consumers slowed spending to a gain of just 0.6% in September, a warning sign for an economy that remains in the grip of a pandemic and a prolonged period of high inflation.
At the same time, a key inflation barometer, closely followed by the Federal Reserve, jumped 4.4% last month from a year earlier. The sharp rise in prices, due in part to supply shortages, has placed an increasing burden on American households. For months, annual inflation has remained well above the modest annual rates of 2% or less that prevailed before the pandemic recession.
Friday’s Commerce Department report also showed personal income, which drives spending, fell 1% in September, the biggest drop in four months. Wages have increased in many sectors of the labor market as employers struggle to find enough workers to fill the positions. But the expiration of federal emergency programs has subtracted the nation’s overall income.
The economy, although growing, is still hampered by COVID-19 cases and persistent supply shortages. On Thursday, the government estimated that the economy had slowed sharply to an annual growth rate of 2% during the July-September period, the weakest quarterly expansion since the recovery began after the pandemic recession last year. .
For the July-September quarter as a whole, consumer spending, which drives about 70% of overall economic activity, weakened to an annual growth rate of just 1.6%. This is a significant drop from a 12% increase in consumer spending in the previous quarter.
Economists remain hopeful of a rebound in the current quarter, with confirmed cases of COVID falling, vaccination rates rising, businesses investing, and more Americans venturing to spend money. money. Many analysts believe GDP will rebound to a solid annual growth rate of at least 4% this quarter.
In Friday’s consumer spending report last month, the government said purchases of durable goods such as automobiles fell 0.2%, while spending on services rose 0.9%. More Americans have shifted their spending from physical goods that many bought while squatting at home to spending on services, from haircuts and plane tickets to dining out. In some cases, a shortage of products, linked to congested supply chains, has likely hampered purchases of goods.
Most economists expect consumer spending to strengthen as supply problems ease. The resiliency of this spending has fueled companies’ need for workers, and in many cases they are not finding enough. In September, employers added just 194,000 jobs, a second consecutive lukewarm gain and a sign the pandemic still had a hold on the economy, with many companies struggling to attract candidates to fill positions.
Many people who lost their jobs during the pandemic have yet to start looking again. Supply chain bottlenecks have also worsened, slowing factories, limiting home builders and emptying some store shelves.