U.S. consumer spending remained resilient in July as savings from lower gasoline prices helped offset persistent inflation and recession fears.
Gasoline prices have fallen more than 21% from a peak of $5.01 a gallon on June 14 to $3.94 on Wednesday, according to AAA, and experts say consumers are starting to take notice. The U.S. Commerce Department reported Wednesday that excluding gasoline and auto sales, overall retail sales rose 0.7% in July from a month earlier.
Not all good news
Although the latest retail sales data show But Wednesday’s report wasn’t all good news. While lower gasoline prices helped consumers keep spending, despite inflation not seen in four years, shoppers’ slump in retail sales data didn’t take inflation into account. There’s less money. Overall sales in July were up just 0.1% year-over-year when adjusted for inflation. Many consumers also look to credit cards to fund their spending as inflation squeezes their budgets Bank of America found that total credit card spending rose 5.4% year-over-year last month. Greg Daco, chief economist at Ernst & Young Parthenon, said: “The high inflation environment is hitting consumer sentiment. Morale and purchasing power have forced many households to tap their savings and use credit. ” On top of that, consumers are now saving well below their pre-pandemic levels. The personal saving rate, which measures consumer savings as a percentage of disposable income, fell to 5.1% in June, well below 2020 levels. 8.3% pre-pandemic in February. The latest retail sales data will only add to the debate over whether the U.S. economy is also in recession. While gross domestic product (GDP) contracted for two consecutive quarters, leading many to claim that the U.S. Already in recession, but most economists don’t think it’s official until the nonprofit research agency the National Bureau of Economic Research announces so. The labor market also added 528,000 jobs in July, recovering Industrial production rose 0.6% last month after contracting for two straight months, after all the jobs lost in the early stages of the pandemic, showing the manufacturing sector’s durability. Experts say it’s not exactly a recession. “June Retail sales were flat, but grew faster than core inflation, excluding gas stations and auto and parts sales. Bill Adams, chief economist at Comerica Bank, said the economy was not in a recession in July due to strong job growth, falling unemployment and higher retail spending in most categories. “The European energy crisis this winter remains the biggest downside risk to the economic outlook; however, the current data remains unchanged, suggesting that the surge in food and gas prices by mid-year was not enough to push the U.S. economy into recession.” While many investment banks say they believe a recession is almost certain, with JPMorgan Chase CEO Jamie Dimon even arguing that “it could be worse than a recession,” only time will tell if the U.S. will actually enter a recession. Good news for businesses: Falling oil prices are helping Americans keep spending.
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