US consumption gain slower in July; prices tepid

Washington: US consumers continued to spend in July but the gains were much slower than the prior two months amid a surge in coronavirus cases, according to government data released on Friday.

Personal consumption expenditures (PCE) rose just 1.9 percent or $267.6 billion compared to June, after gains of 6.2 percent and 8.6 percent in the prior two months, the Commerce Department reported.

Even after the previous months´ sharp gains, spending remains well below the level seen in February before the Covid-19 pandemic struck and forced businesses to shut down nationwide, causing tens of millions of job losses.

Personal income rose 0.4 percent, after two months of declines, which the report said "was more than accounted for by compensation of employees as portions of the economy continued to reopen."

However, the reopening was accompanied by a surge in cases in many states, which then had to reimpose shutdowns.

Income from emergency government support programs dropped sharply last month, and many expired July 31. The White House and Congress remain deadlocked on a new package that would include support for state and local governments and an extension of expanded unemployment payments.

The PCE price index, the inflation gauge watched most closely by the Federal Reserve, slowed as well, ticking up 0.3 percent, after a 0.5 percent gain in June. The index is up 1.0 percent compared to July 2019, the report said.

The Fed unveiled a policy shift Thursday that means the central bank will allow inflation to stay above its 2.0 percent goal for some time without raising borrowing rates in order to maximize employment gains. But that stronger emphasis on jobs will not be put into practice until the economy heats up and inflation returns. Even with unemployment at historic lows before the pandemic, prices rarely achieved the 2.0 percent rate for long.

Excluding more volatile food and energy prices, PCE inflation was up just 0.3 percent last month, and 1.3 percent higher than a year earlier, the report said.