Consumers boost spending again, but they’re paying higher prices due to high inflation

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The numbers: Americans spent more money in August to keep the U.S. recovery going, but delta took a bite out of the economy and high inflation posed another hurdle. Consumer spending jumped by 0.8% last month, the government said Friday. Economists polled by The Wall Street Journal had forecast a 0.7% increase.

If high inflation is taken into account, however, spending rose by only half that amount. What’s more, spending in July was revised to show a small decline instead of an increase. Incomes climbed a modest 0.2% last month, reflecting somewhat less government spending on pandemic-related transfer payments. Big picture: The U.S. economy suffered a minor blow toward the end of summer from the rapid spread of the delta coronavirus strain. Some people stopped going out as much and cut spending on services such as dining out or travel. Households are still spending plenty of money, though, and a high savings rate suggests they have the ability to spend even more. Not all of the spending is a sign of strong demand, however. The fastest increase in inflation in 30 years means Americans are paying more for products and services now than they were one year ago. Read: Powell says high inflation could last into early next year due to shortages Also: The Fed has bet on a future of low inflation. Here’s what could go wrong Key details: Consumers bought more food and drinks and recreational items in August. They also increased spending on rent, utilities and health care. Consumer spending fell sharply on autos and parts. Automakers can’t get enough computer chips to complete as many cars and trucks as usual. The chip shortage is likely to last into next year, keep prices high and putting a cap on sales. Sales at service-oriented companies softened as expected, but perhaps not for long. Delta cases are already falling rapidly in most parts of the country and that could encourage more people to get out and about again. The savings rate, meanwhile, slid to 9.4% from 10.1% in the prior month. Yet savings still easily exceed pre-pandemic levels, giving many families a good financial cushion and the ability to spend more if they desire. Inflation is eating away part of their incomes, however. The yearly rate of U.S. inflation as measured by the Federal Reserve’s preferred PCE stood at 4.3% in August. That’s the highest rate since 1991, Market reaction: The Dow Jones Industrial Average
and S&P 500
were set to open higher in Friday trades.

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