Consumer spending continued to climb, but at a slower pace in July. According to Commerce Department figures, spending rose by 1.9% monthly. This marks the third increase in a row, after the metric grew by 8.5% in May and 5.6% in June.
July’s numbers are less dramatic because the monthly comparison is higher. After the economy tanked in April, May’s numbers were all but certain to show a big rebound.
Income rose 0.4% in July after falling for the previous two months. The personal savings rate was 17.8%, shrinking slightly from June’s 19.2%. This is historically high – in comparison, the savings rate was 7.6% in January and 8.3% in February, but ballooned to 33.5% in April. It’s reflective of the state of the economy, and where consumers see things going. While the economy was bleeding jobs, people were stashing money away. Now with the unemployment rate shrinking (among other indications), Americans feel more confident about spending versus saving.
Things are turning around on several fronts. Retail sales topped pre-pandemic levels last month and durable goods orders soared by 11.2%. Auto sales have been a bright spot, and home sales data from multiple sources paint a picture of a very healthy sector.
The economy isn’t out of the woods entirely, yet. Tourism, entertainment, and travel is still struggling to recover, while unemployment remains stubbornly high. Last week, a measure of consumer confidence showed that sentiment is still close to its pandemic low.
July was the last month in which unemployed workers received an extra $600 per week. Going forward, we could see a bigger drop in consumer spending as a result. On August 8th, President Trump signed an executive order to keep the enhancement going at $300 per week, with an option to let states chip in another $100.
On the other hand, Federal Reserve policy could encourage consumers to keep opening their wallets. Last week, the Fed announced that it would allow inflation to rise above its 2% target rate following periods of economic downturn. In order to accomplish this, the governing body will have to keep interest rates low, likely for years into the future.