Business


Consumer spending in US drops in July


A sustained labour market upswing is needed to lift earnings and help boost outlays at retailers such as Ross Stores. Photo - Bloomberg file

Washington: Consumer spending in the US unexpectedly dropped in July for the first time in six months, a sign households are lagging behind as wages fail to accelerate.

Household purchases decreased 0.1 per cent after increasing 0.4 per cent in June, Commerce Department figures showed on Friday in Washington. None of the 79 economists in a Bloomberg survey projected a decrease. Incomes climbed 0.2 per cent, the smallest monthly advance this year.

Consumer spending, which accounts for about 70 per cent of the economy, has been held back by tight credit and meagre wage growth that is barely able to keep up with inflation.

 A sustained labour market upswing is needed to lift earnings and help boost outlays at retailers such as Ross Stores.

"Consumers do face some constraints," Michael Carey, chief economist for North America at Credit Agricole CIB in New York, said before the report.

"We're still seeing real earnings are flat," Carey said.

Projections for spending in the Bloomberg survey ranged from little changed to a 0.4 per cent gain. The June reading was unrevised. The Bloomberg survey median called for incomes to rise 0.3 per cent.

Purchases last month dropped 0.2 per cent following a 0.2 per cent June increase after adjusting for inflation, the data used to calculate gross domestic product.

Spending breakdown
Spending on durable goods, including cars and trucks, declined 0.6 per cent after adjusting for inflation, following a 0.5 per cent advance in June. Purchases of non-durable goods, which include fuel and clothing, fell 0.2 per cent.

Household outlays on services decreased 0.1 per cent. The diverse category, which includes health care, utilities, tourism, and legal work, is difficult for the government to estimate accurately in the preliminary report.

Prices tied to consumer spending rose 1.6 per cent in the year ended July, the same as in the prior month. Federal Reserve policy makers aim for price increases of two per cent a year.

The core prices category, which excludes fuel and food, increased 0.1 per cent in July from the prior month and was up 1.5 percent from a year ago.

Williams-Sonoma and Guess? are among merchants coping with a retail slump that has them relying on sales and other promotions to drive customer traffic.

At Ross Stores, a discount retailer based in Pleasanton, California, traffic is flat and the number of transactions hasn't increased from a year ago. Consumers continue to be "under pressure," President and Chief Operating Officer Michael O'Sullivan said.

"It's pretty apparent that the low- to moderate-income customer is struggling," Sullivan said on an August 21 earnings call. "We don't see a lot of evidence that that's going to change in the back half. We could be wrong but we don't see a lot of evidence for that, and we expect the environment to remain pretty promotional."

"Spending was hurt by the decline in vehicle sales as real durable goods spending posted the largest decline," said Scott Hoyt of Moody's Analytics.  "Even if real spending rises by 0.3 per cent in both August and September, the Q3 annualised gain will be just 1.1 per cent," said Ian Shepherdson of Pantheon Macroeconomics.

"Expect forecast downgrades after these data," he added.

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