US consumer-spending rebound cools, hinting at more risk ahead

[WASHINGTON] The rebound in US consumer spending moderated in July amid a surge in virus cases, with outlays at risk of further softening after cuts in supplemental relief payments for jobless Americans.

Household outlays rose 1.9 per cent from the prior month following an upwardly revised 6.2 per cent rise in the prior month, a Commerce Department report showed Friday. That compared with economists' estimates for a 1.6 per cent gain. Personal incomes rose 0.4 per cent, topping expectations for a slight decline.

The deceleration in spending - which accounts for about two-thirds of the economy - marks a tempering in the economic recovery following two months of stronger gains. While spending has increased in recent months, total outlays remain below pre-pandemic levels. Spending could take a further hit in August after the expiration of the extra US$600 in weekly jobless benefits at the end of July, which had propped up incomes and consumption.

President Donald Trump signed an executive action in early August to provide an extra weekly US$300 in federal benefits for most unemployment insurance recipients as a stopgap measure after lawmakers failed to reach agreement on a comprehensive stimulus bill. But pickup of the programme will take time. More than half of the nation's states have been approved for the programme, but only a handful have actually begun to make payments. Others anticipate it could be weeks before residents see the aid.

A separate report Friday showed US imports and exports jumped in July, pointing to a continued stabilisation in commerce as global economies start to recover from the pandemic. The merchandise-trade deficit grew to US$79.3 billion last month, the widest since late 2018.

US stock futures pared gains after the report.

The income and spending report showed wages and salaries rose 1.4 per cent in July, reflecting continued hiring and rehiring in the wake of business reopenings, though the gains slowed from the prior two months.

BENEFIT BOOST

Meanwhile, the impact of unemployment benefits was clear: Unemployment insurance payments still made up 6.8 per cent of incomes in July, following 7.4 per cent in June.

Adjusted for inflation, real consumer spending rose 1.6 per cent in July following a 5.7 per cent increase in June. Motor vehicles, health care and restaurants and hotels drove the month's gain in outlays, according to the report.

More broadly, the economy is in a precarious state. Jobless claims remain extraordinarily high, the trend in job postings has pulled back in recent weeks and small businesses are looking to further government support. The nation has recouped fewer than half of the jobs it lost in March and April, underscoring that it will take time before the US economy - and the jobs market - look anything like they did before the pandemic.

The personal savings rate, which had surged to a record in April as a result of the rise in government social benefits, fell to a four-month low of 17.8 per cent, though that's still more than double February's level of 8.3 per cent.

While Federal Reserve chair Jerome Powell said Thursday that the central bank will seek inflation that averages 2 per cent over time, current gauges of consumer prices are well below that 2 per cent target. The index of consumer prices that the Fed officially uses for its target rose 1 per cent in July from a year earlier. The core price index, which excludes more-volatile food and energy costs, increased 1.3 per cent.

BLOOMBERG