While the markets may be in a bit of a frenzy, lately, US consumer spending appears to be on an upswing. The latest data shows that US households bought a wide range of goods and services in July, which analysts hope will quell any and all concerns of a recession. At the same time, the pace of growth in consumer consumption is not very likely to sustain during a period of such tepid income gains.
According to data from the United States Department of Commerce, consumer spending rose 0.6 percent over the last month, after an unrevised 0.3 percent gain in June. Economists had earlier forecast that consumer spending would advance 0.5 percent, last month. It should be noted, of course, that consumer spending is a major driving force in the US economy, accounting for more than two-thirds of all economic activity.
That said, the latest report includes trade and inventory data which suggests that even though the US economy appears to be tapering off, the effect has not been as dramatic as might have been expected. It has been a year since Washington started its trade war with China—spooking global financial markets in the process—and this has resulted in inversion of the US yield curve, which has contributed to rising fears that longest economic expansion on record is in danger of quickly becoming a recession.
Now it should also be noted that the White House issued a $1.5 trillion tax-cut stimulus package, capped by a bunch of government spending. Of course, that stimulus did not trickle down to the majority of consumers, and did not appear to help the US-China trade conflict that has been weighing on manufacturing and business investments, many of which saw contraction during the second quarter.
Considering that the trade war drove weakness in these areas (business investment and manufacturing), the continued slowing of economic growth across the globe has combined with low inflation at home, which has all resulted in the Federal Reserve likely cutting interest rates next month.