U.S. Consumer Spending, Incomes Signal Stable Second-Half Start
U.S. consumer spending increased by less than estimated in July, though rising incomes and an upward revision to June purchases put the economy on a stable footing for the second half, Commerce Department figures showed Thursday.
HIGHLIGHTS OF PERSONAL INCOME AND SPENDING (JULY)
- Purchases rose 0.3% m/m (est. 0.4% rise) after upwardly revised 0.2% increase in June
- Incomes rose 0.4% m/m (est. 0.3% rise), the most since February, after no change
- Price gauge tied to consumption rose 0.1% m/m (matching est.); up 1.4% y/y (matching est.)
- Excluding food and energy, prices rose 0.1% m/m (matching est.); so-called core index was up 1.4% y/y (matching est.), lowest since 2015
The steady gains in consumption, which accounts for about 70 percent of the economy, reflect robust hiring, healthier finances and low inflation. They also signal consumers will keep driving the expansion, though recent reports show economic growth may be broadening out to include a pickup in business investment. Revised gross domestic product data released Wednesday showed the economy grew at a 3 percent annualized pace in the second quarter, the fastest in two years and driven by consumption gains of 3.3 percent.
ECB concerns sink euro further
The euro fell against the dollar on Thursday after sources told Reuters that a growing numbers of European Central Bank policymakers were concerned by the strength of the euro and may go slower tightening monetary policy as a result. The single currency has been falling steadily since hitting 2-1/2 year highs against the dollar on Tuesday, driven by upbeat U.S. economic data and concerns that the ECB will have to alter course in response to the euro’s 13 percent rise this year. Three sources familiar with discussions told Reuters that formal talks over the future of the bank’s stimulus scheme were only beginning, meaning the ECB is highly unlikely to take any decision to start reining it in at a meeting next Thursday. “They are somewhat concerned about the euro’s strength and the source piece backed that up again,” said Citi strategist Josh O’Byrne. “It did run contrary to the other news story we have had this morning which is the better inflation number. But there was already some expectation that the euro would be a bit soft going into the U.S. jobs numbers on Friday so we are a bit weaker.”
China factory growth unexpectedly speeds up in August in further global boost
Growth in China’s manufacturing sector unexpectedly accelerated in August, suggesting the world’s second-largest economy is still expanding at a healthy clip despite rising financing costs and a cooling housing market. Along with stronger U.S. economic growth reported overnight, China’s official factory readings indicated the global economy remains on solid footing for now, despite concerns that growth may begin to fade in coming months. China’s resilience so far this year has surprised economists and given an extra boost to a global recovery despite Beijing’s crackdown on riskier types of lending and ever-tougher curbs to get the overheated housing market under control. The official Purchasing Managers’ Index (PMI) released on Thursday rose to 51.7 in August from the previous month’s 51.4, confounding economists’ expectations for a marginal decline. Production, total new orders and business expectations all shifted into higher gear, while a separate industry survey showed activity in the steel sector expanded at the fastest pace since April 2016 thanks to a year-long, government-led construction boom.