US personal spending growth decelerates in July

US personal spending growth slowed down in July, according to the Commerce Department, as shortages of motor vehicles offset a rise in outlays on in-person services.

Consumer spending rose just 0.3% last month following a revised 1.1% increase in June, while the personal consumption expenditures price gauge ticked up 0.4% month-on-month and 4.2% year-on-year.

While the figures suggest that demand has picked up in services like travel and leisure, the spending increase was not enough to make up for the decline in goods spending, which was impacted by shortages, most notably in those of motor vehicles.

However, the personal consumption expenditures price index, which strips out volatile food and energy components, advanced 0.3% in July after advancing 0.5% in June, while in the 12 months ended 31 July, the PCE price index rose 3.6%.

Pantheon Macroeconomics said: "Consumer spending advanced a moderate 0.3% amidst a Covid-induced summer chill. The great consumer spending rotation from goods to services is still ongoing, but the Delta variant has curbed households’ enthusiasm for service sector activities. Adjusted for price increases, consumer spending rose a mere 0.x% as inflation continues to erode households’ purchasing power.

"While pandemic fatigue is setting in and leading to strong emotional responses, we believe cooler consumer spending growth is more likely than consumers retrenching and the economy going into reverse. Employment growth remains solid, compensation is rising, household finances appear healthy and savings buffers are elevated. Combined these should help support consumer spending growth around 8% this year – a record."