Tepid U.S. Consumer Spending Keeps Economic Rebound On Track
The tepid pace of U.S. consumer spending in May is nevertheless enough to keep the economy on track for a rebound in the second quarter, helped by income gains, Commerce Department figures showed Friday.
HIGHLIGHTS OF PERSONAL INCOME AND SPENDING (MAY)
- Purchases rose 0.1% from prior month (matching est.) after 0.4% increase in April
- Incomes rose 0.4% (est. 0.3% rise) after 0.3% gain
- Price gauge tied to consumption fell 0.1% m/m (matching est.); was up 1.4% y/y (est. 1.5%)
- Excluding food and energy, prices rose 0.1% m/m and 1.4% y/y (matching both ests.)
Americans may be reluctant to ramp up spending until they see a faster pickup in wages, even as steady hiring, healthier balance sheets and low borrowing costs are helping to support their purchases. Since household spending accounts for about 70 percent of the economy, any persistent weakness would damp the outlook for a stronger rebound in economic growth after the lacklustre pace of early 2017. An outsized 4.8 percent jump in dividends powered May’s gain in inflation-adjusted disposable income, which matched the biggest since December 2012. Wages and salaries, meanwhile, cooled to a 0.1 percent increase following a 0.5 percent gain in April.
China energy demand may already have peaked: researchers
China’s energy demand has reached peak levels and is set to fall in coming years, an influential government think tank said, in a study offering an optimistic view on Chinese efforts to combat climate change. The study by the China Academy of Social Sciences (CASS) study said China’s total energy consumption is expected to fall to the equivalent of 4 billion tonnes of standard coal in 2020, which would represent a decline of 8 percent from last year. Consumption would then inch down to 3.74 billion tonnes in 2030 and 3 billion tonnes by 2050, the study said. “(Peak demand) could be this year or next year – this is a gradual process and isn’t just coming down suddenly from a very pronounced summit,” said Qiang Liu, director of CASS’s Institute of Quantitative and Technical Economics. The CASS study suggests Beijing is cutting coal use far faster than expected, and comes weeks after U.S. President Donald Trump decided to quit the 195-nation Paris agreement on climate change and reaffirmed his commitment to revive U.S. fossil fuels. It also indicates China could reach its pledge to bring climate-warming greenhouse gas emissions to a peak by “around 2030” earlier than expected, given that the energy sector is estimated to account for 70-80 percent of its CO2 emissions.
Inflation Signals Give Draghi Little Respite on Path to QE Exit
Another month of inflation data, and Mario Draghi still doesn’t have a definitive sign that the European Central Bank can consider ending its monetary stimulus. Consumer-price growth weakened in June even as the core rate picked up, backing the ECB president’s call for persistence with loose policy and prudence in signalling its withdrawal. At the same time, the figures provide some fodder to colleagues such as Executive Board member Sabine Lautenschlaeger, who urged a faster pace in preparing for normalization. More than four years into its economic recovery, fortified by negative interest rates and a 2.3 trillion-euro ($2.6 trillion) bond-buying program, the euro area has finally turned the corner and is starting to reflate. That has sparked a public debate over how fast the ECB should start paring back its stimulus, even with price and wage growth still muted. “Even if no stable trend is visible as yet — and you can see that in the data published today — it is important to prepare for different times, for there is reason to be optimistic,” Lautenschlaeger said at an event in Berlin on Friday. “Monetary policy should already be making preparations for a return to a normal stance. And it should adapt its communication accordingly.”