US Consumer Spending, Income Grew in July

Spending was up 0.3 % and personal income rose 1.1 %, as Delta variant, other factors limit ability of companies to serve customers.

By guest author Josh Mitchell from the Wall Street Journal

Captions courtesy by the Wall Street Journal

Consumer spending grew 0.3 % in July and income rose 1.1 %, the Commerce Department said Friday. August 27, 2021. The slower spending growth suggests the recovery has lost momentum amid Delta variant uncertainty.

Americans have been shelling out more this summer to travel, dine out, and attend concerts, museums and conferences—activities they had put off for most of the pandemic. But there are signs that such spending is taking a hit and affecting businesses, undermined by consumer fears tied to the Delta variant, staffing shortages and persistent bottlenecks in global shipping networks.

Incomes are likely rising as more people get jobs and the government continues to dole out money from pandemic-relief programs. Such income growth, coming on top of already high savings that households have accumulated during the pandemic, would prime the economy for strong consumer The emerging problem is that Americans will have fewer opportunities—in the near term, at least—to spend that money. In recent weeks, event planners have announced the cancellation of a national-security conference in Kirkland, Wash., a book fair in Jackson, Miss., five concerts by country star Garth Brooks, and two music festivals in New Orleans, including Jazz Fest. In Houston, Rice University said it would delay the start of in-person classes by two weeks. This week, Hawaii Gov. David Ige, a Democrat, urged tourists to stay away from the islands for now, spending and economic growth later this year and next.

“The worsening of the health situation is weighing on activities that we initially thought would thrive during the summer,” said economist Gregory Daco of Oxford Economics. “But still people are spending. It’s not the same type of environment in prior waves where you had a big pullback.”

Oxford Economics earlier this summer projected that consumer spending would rise at an annual rate of nearly 8% in July through September. But recently they cut that projection by more than half, to 3.5 %.

To understand why, consider Rob Apgar -Taylor, a 56-year-old pastor from Hagerstown, Md. A year ago, Covid-19 forced him to postpone a weeklong trip to New Orleans to celebrate the 40th birthday of his husband of the same first name, Rob Apgar. The hotel they booked said they would have a year to reschedule or lose their money. With the Delta variant raging, the couple—both are vaccinated—decided this summer to cancel the trip entirely.

Mr. Apgar-Taylor said a requirement to wear masks indoors is the biggest factor. “We’re not going to vacation and be masking everywhere I go—that’s not fun,” he said. “I’d rather just be alone and watch Netflix. ”

He said his church also cancelled a trip this summer to Europe to work with refugees, and that congregants have postponed weddings.

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Americans have already reduced spending on goods, such as cars, furniture and building supplies, according to a Commerce Department report released earlier this month. U.S. retail sales fell 1.1% in July from June, the report showed. But purchases at retailers only reflect a slice of all consumer spending.

Households are still likely to boost spending on services. Restaurant bookings, for example, continue to rise, according to private-sector data tracked by Mr. Daco. So while Americans may not be able to attend many events, they could shift spending elsewhere.

Mr. Apgar-Taylor and his husband, a police officer, for example, have over the past year upgraded their house—refinishing wood floors, remodeling a bathroom—by using money they otherwise would have spent on dining out and other activities.

Consumer spending is the biggest source of economic demand for the U.S., and the rise in spending is a big reason why the economy is recovering quickly from last year’s pandemic-induced recession. The economy grew at a 6.6 % annual rate in the second quarter, a pickup from the first quarter’s 6.3 % gain, revised figures from the Commerce Department showed Thursday.

Economists expect growth to slow in the third quarter. IHS Markit, a forecasting firm, projects growth to slow to a 5.4% rate in July through September, in part because of weaker spending growth.

Friday’s report will also offer an update on the Federal Reserve’s preferred measure of inflation, which has risen this year above the central bank’s target of just over 2 %. So-called core consumer prices, which strip out food and energy costs, likely rose 0.3 % in July from a month earlier and 3.6 % over the prior 12 months, according to the Journal survey. In June, core prices rose 0.4 % compared with a month earlier and 3.5 % compared with a year earlier, government figures show.