Households spent less on gasoline and other goods, partially reflecting lower fuel prices
By guest author Sarah Chaney Cambon friom the Wall Street Journal
U.S. households slowed their spending in July as they confronted historically high inflation and rising interest rates.
Consumer spending rose 0.1% in July from a month earlier, the Commerce Department said Friday. That marked a slowdown from June, when spending increased 1 %. Americans spent less on certain goods—such as gasoline—in July, while they increased their outlays on services and long-lasting goods.
Personal incomes edged up 0.2 % last month.
The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 6.3 % in July from a year earlier, Friday’s report showed. That was down modestly from a 6.8 % annual gain in June, a four-decade high.
Several factors have helped support spending, including pent-up demand for summer travel, rising incomes, recently declining gasoline prices and excess savings built up during the early days of the pandemic, said Joseph Brusuelas, chief economist at RSM US LLP.
“Those are the four major things that are responsible for overall spending activity hanging in there despite an 8.5 % rate of inflation,” said Mr. Brusuelas. “The consumer is stable with risks of a pullback.”
A potential pickup in gasoline prices poses one notable risk to future spending patterns, Mr. Brusuelas said. Average gasoline prices fell below USD 4 a gallon in recent weeks after exceeding USD 5 a gallon in June. The war in Ukraine and other global factors could again push prices higher.
Gasoline prices play an important role in how people think the economy is doing and how quickly they expect other prices to rise, according to economists.
Linda Coburn, co-owner of Pedego 101 Electric Bikes in Westlake Village, Calif., said sales at the retailer are running above 2019 levels but have cooled over the past year as consumers have shifted their spending toward travel. Stock-market declines are also likely playing a role, she said.
“People are looking at that and saying, ‘We want to just be more conservative with our spending at this moment in time,’” Ms. Coburn said. “A lot of our customers are in the retirement range, so they’re much more conscious of making sure that their retirement funds are where they need to be.”
Ms. Coburn is facing higher costs for labor and shipping, as well as bike tires and baskets. “Inflation is very concerning,” she said. “It’s all adding up to making us less profitable for doing the exact same amount of work.”
Fed officials voted to raise their benchmark rate by 0.75 percentage point in July, following an increase of the same size in June. The moves—the largest rate increases since 1994—are an attempt by the central bank to cool demand and ease inflation.
Inflation is weighing on Americans’ moods. Consumer confidence fell for a third consecutive month in July, the Conference Board said.