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US consumer spending falls in real terms

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Date: Friday 29 Aug 2008

LONDON (ShareCast) - The effects of the government’s tax rebate are dwindling, judging by the latest US consumer spending data.

US consumer spending rose 0.2% in July, in line with forecasts, after rising 0.6% in June. The rise in spending is more than accounted for by inflation; inflation-adjusted spending dipped 0.4%.

Personal income in the same month fell 0.7%, the steepest monthly decline since August 2005 and far worse than the 02% decrease economists had been expecting.

The data provides further evidence of a slow-down in the US economy and dissipates some of the optimism engendered by yesterday’s better than expected US Gross Domestic Product (GDP) figures.

US GDP grew by an annualised 3.3% in the second quarter after rising 0.9% in the first quarter. Analysts had been expecting a gain of 2.7%.

Core consumer prices rose 0.3% in July, taking the annual gain to 2.4%, which is above the Federal Reserve’s target level and raises the prospect of the Fed moving to increase interest rates if the rate does not reverse soon.

Total inflation, which, unlike the core consumer price index, includes food and energy, rose 0.6% in July to give an annual inflation rate 4.5%.

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