WASHINGTON, Sept 28, 2019 (BSS/AFP) – US consumer spending slowed sharply
in August, according to the latest government data Friday, suggesting turmoil
from President Donald Trump’s trade wars was hitting home for the general
public.
And in another sign trade tribulations are weighing on American industry,
demand for big-ticket manufactured goods also showed unwelcome weakness,
economists said.
The new data Friday caused some economic forecasters to cut their third-
quarter GDP growth estimates sharply, and they also were likely to exacerbate
disagreements among US central bankers over the path of interest rates.
Federal Reserve policymakers are increasingly divided over the direction
of monetary policy but markets expect they will vote to cut the benchmark
lending rate again this year to cushion the trade war’s impact on the
economy.
On one hand, a key component of the Federal Reserve’s preferred inflation
measure of ticked higher in August for the third month in a row, although it
remains below the Fed’s two percent target, according to Commerce Department
data. That could bolster arguments against cutting interest rates again.
But on the other hand the decline in consumer spending and weakness in
durable goods orders suggest the world’s largest economy is slowing faster
than expected, suggesting easier interest rates are needed to boost it.
Ian Shepherdson of Pantheon Macroeconomics said Friday said the trade war
made consumers “nervous” and “the consumer boom is coming to an end,
rapidly.”
The Commerce Department said disposable incomes adjusted for inflation
rose 0.4 percent in August, the biggest increase since February, suggesting
consumers have plenty of cash available.
But spending slowed to show a tepid 0.1 percent gain, its smallest monthly
pace since February. Compared to the same month last year, the increase was
the weakest recorded since December 2018.
– Forecasts slashed –
As a result, savings rose to $1.36 trillion, the highest level since
March, meaning American consumers are holding onto their cash.
Meanwhile, August appeared at first glance to be a better-than-expected
month for US manufacturing, with a second straight sales gain for military
aircraft and equipment, according to a Commerce Department report.
Together with a boost in sales of primary metals, overall new orders for
big-ticket, US-made items rose 0.2 percent, far better than the one percent
drop economists had expected.
But the data show other industries had a painful month, with notable
declines for civilian aircraft, autos, communications equipment, electronics
and appliances.
A measure seen as a proxy for business investment, and a sign of future
business activity, also fell in August after recording a flat July.
Taking the developments into account, Macroeconomic Advisers slashed their
third-quarter GDP forecast by 0.6 percentage point to 1.6 percent — about
half what it was at the start of the year.
Oxford Economics cut their forecast to an even-lower 1.3 percent.
That would be a sharp slowdown in an economy that grew 3.1 percent in the
first three months of the year and 2.0 percent in the second quarter.
Federal Reserve regional branches in New York and Atlanta, however, said
the new data pointed to stronger 2.1 percent growth for the July-September
period.
Elsewhere, tumbling energy prices kept a lid on overall price gains for
last month, as the Personal Consumption Expenditures price index was
unchanged from July, falling short of economists’ expectations.
Compared to August 2018, the PCE price index, which tracks costs for goods
and services purchased by individuals, rose 1.4 percent, holding at the same
rate for four months in a row and well below the central bank’s two percent
target.
When volatile food and fuel prices are stripped out, the “core” price
index for August gained a trivial 0.1 percent over July, but rose by a hotter
1.8 percent from a year ago.
That closely-watched measure was fueled by steady gains in the costs of US
services which pushed it to its highest level since January.