Skip to Content

America’s economic engine is still revving, despite fears of a slowdown

<i>Liao Pan/China News Service/Getty Images/FILE via CNN Newsource</i><br />A customer shops for dairy products at a supermarket in Manhattan on July 11 in New York City.
CNN
Liao Pan/China News Service/Getty Images/FILE via CNN Newsource
A customer shops for dairy products at a supermarket in Manhattan on July 11 in New York City.

By Bryan Mena, CNN

Washington (CNN) — A key driver of the US economy remains solid.

Spending at US retailers rose 0.1% in August from the prior month, the Commerce Department reported Tuesday. That’s a much slower pace than July’s upwardly revised 1.1% gain, but well above the 0.2% decline economists projected in a FactSet poll. The figures are adjusted for seasonal swings but not inflation.

It’s an encouraging sign for America’s economy, since consumer spending represents two-thirds of US economic output. Retail sales make up a sizable chunk of overall spending.

Tuesday’s report is the final major economic release before the Federal Reserve announces its latest interest-rate move on Wednesday. The numbers do little to influence the size of the expected rate cut. The debate over whether the Fed will roll out a quarter-point rate cut, or a larger, half-point cut has intensified recently.

The health of the US economy, especially the job market, is top of mind for the Fed and Wall Street, which is betting the central bank will start cutting aggressively. Employers are hiring fewer workers these days and it’s become a lot tougher for workers to find a new job. The unemployment rate has ratcheted up quickly over the past year, reaching a 4.2% rate last month from 3.8% a year earlier.

If the job market falters, that could translate into a sharp pullback in consumer spending, spelling trouble for the US economy. Businesses would be forced to adjust their hiring plans accordingly, with American shoppers spending less, possibly igniting a negative feedback loop in which consumers spend even less because they got laid off, according to economists. The Fed could step in to prevent that by lowering borrowing costs.

US consumers have cautions plans in mind

While consumer spending remains above pre-pandemic levels, two separate surveys released recently point to a slight pullback in the months to come.

In August, consumers surveyed by the Federal Reserve Bank of New York reported a 5% annual increase in nominal household spending, up from 4.6% in April.

However, median expected monthly overall spending growth slowed a tick to 3% last month, the New York Fed survey found. That increase is well below the 5.4% high hit in April 2022 but remains above the range seen in 2019.

A separate survey from Bank of America released Friday painted a similar picture: a pullback in spending expectations from May 2024 on both the three- and 12-month horizons.

“It’s pointing to a picture of a consumer that, incrementally, is getting even more discerning about where they spend their money,” said Robert F. Ohmes, research analyst at Bank of America Securities.

The increasingly cautious approach to spending is likely more “wallet shift” versus fears of unemployment, he said, noting food prices as an example. In the decade leading up to the pandemic, food prices held relatively steady, with a 5-year growth rate below 1%, he said.

“Today, it’s a 27% increase versus what you were paying five years ago,” he said. “If you’re making 15% more money, but your grocery prices are up 27%, you have to buy less of something to be in the same place.”

Food price inflation has moderated substantially during the past year, Consumer Price Index data shows. As of August, grocery prices were rising at a pace of 0.9% annually, landing in line with the average increase seen in 2019, according to Bureau of Labor Statistics data.

The-CNN-Wire
™ & © 2024 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

CNN’s Alicia Wallace contributed to this report.

Article Topic Follows: CNN - Business/Consumer

Jump to comments ↓

CNN Newssource

BE PART OF THE CONVERSATION

KRDO NewsChannel 13 is committed to providing a forum for civil and constructive conversation.

Please keep your comments respectful and relevant. You can review our Community Guidelines by clicking here

If you would like to share a story idea, please submit it here.

Skip to content