US consumer spending falls unexpectedly in May
[WASHINGTON] US consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of tariffs faded, while monthly inflation increases remained moderate.
Consumer spending, which accounts for more than two-thirds of economic activity, dropped 0.1 per cent last month after an unrevised 0.2 per cent gain in April, the Commerce Department's Bureau of Economic Analysis said on Friday (Jun 27). Economists polled by Reuters had forecast consumer spending would edge up 0.1 per cent.
President Donald Trump's sweeping tariffs, which have led businesses and households to front-run imports and goods purchases to avoid higher prices from duties, have muddled the economic picture. Economists warned it could take time for the tariff-related distortions to wash out of the data.
A record goods trade deficit in the first quarter, thanks to a deluge of imports, accounted for much of the 0.5 per cent annualised rate of decline in gross domestic product during that period.
Consumer spending also nearly braked last quarter after being propelled by households pulling forward goods purchases. Households also spent less on services last quarter, helping to restrain growth in consumer spending to only a 0.5 per cent pace, the slowest rate since the second quarter of 2020.
That data potentially puts spending on a slow growth path in the second quarter.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
The combination of soft consumer spending and inflation is, however, unlikely to spur the Federal Reserve to resume cutting interest rates in July. Fed chair Jerome Powell told lawmakers this week that the US central bank needed more time to gauge the impact of tariffs on prices before considering a rate cut.
Economists argue that price increases have remained moderate because businesses are still selling inventory accumulated before the tariffs went into effect. They expect inflation will start picking up, beginning with consumer price data for June.
The Personal Consumption Expenditures (PCE) Price Index gained 0.1 per cent in May, matching the rise in April, the BEA said. In the 12 months through May, PCE inflation increased 2.3 per cent after climbing 2.2 per cent in April.
Stripping out the volatile food and energy components, the PCE Price Index increased 0.2 per cent last month. That followed a 0.1 per cent rise in the so-called core PCE inflation in April.
In the 12 months through April, core inflation advanced 2.7 per cent after rising 2.6 per cent in April. The Fed tracks the PCE price measures for its 2 per cent inflation target. The central bank last week left its benchmark overnight interest rate in the 4.25 per cent-4.50 per cent range, where it has been since December. REUTERS
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
2 hours ago
- CNA
Dollar weakest since 2021 against euro as Fed rate cuts bets rise
NEW YORK :The dollar hit a fresh three-and-a-half-year low against the euro on Friday as traders bet that the Federal Reserve will cut rates more times and possibly sooner than previously expected as some U.S. data points to a weakening economy. A report on Friday showed that U.S. consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of tariffs faded, while monthly inflation increases remained moderate. A weekly jobs report on Thursday showed that continuing unemployment claims rose to the highest level since November 2021 while gross domestic product figures for the first quarter reflected a sharp downgrade to consumer spending. 'Some of the data that we've had has not been particularly good over the last few days,' said Lou Brien, strategist at DRW Trading in Chicago. Fed Chair Jerome Powell's testimony to U.S. Congress this week was interpreted as dovish after he noted that rate cuts are likely if inflation doesn't increase this summer as he expects. Reports that U.S. President Donald Trump could also appoint a replacement for Powell in the coming months have added to dollar weakness. The new Fed chair is expected to be more dovish and an early appointment could undermine Powell's influence by acting as a shadow chair before Powell's term ends in May. Trump has not decided on Powell's replacement and a decision isn't imminent, a person familiar with the White House's deliberations said on Thursday. The dollar index fell 0.15 per cent to 97.23 while the euro was last up 0.21 per cent to $1.1723. The single currency reached $1.1754, the highest since September 2021. The euro got a small uplift after data showed French consumer prices rose more than expected in June, while Spain's 12-month EU-harmonised inflation also inched higher. Fed rate cuts would reduce the interest rate advantage of the dollar relative to peers. Traders are pricing in 65 basis points of cuts by year end, up from 46 basis points a week ago. The long-term outlook for the dollar is also seen as challenging as foreign investors reevaluate the 'American exceptionalism' that has drawn investment to the country. Brien said that the impact of the Biden administration's policies was also still weighing on the currency. Former President Joe Biden cut off Russia's access to the U.S. dollar, froze its assets and imposed sanctions following the country's invasion of Ukraine in 2022, which analysts say led other countries to accelerate shifts away from U.S. dollar reliance. 'The Biden administration weaponized the dollar as it really had not been weaponized before,' Brien said. 'That aspect of it is still in the back of people's heads.' Against the Japanese yen, the dollar strengthened 0.19 per cent to 144.65. Core consumer inflation in Japan's capital slowed sharply in June due to temporary cuts to utility bills but stayed well above the central bank's 2 per cent target, keeping alive market expectations for further interest rate hikes. In cryptocurrencies, bitcoin fell 1.13 per cent to $106,594.
CNA
2 hours ago
- CNA
China confirms trade deal framework reached with United States
BEIJING: China confirmed on Friday (Jun 27) details on the framework of a trade deal with the United States, saying Washington would lift "restrictive measures" while Beijing would "review and approve" items under export controls. A top priority for Washington in talks with Beijing had been ensuring the supply of the rare earths essential for products including electric vehicles, hard drives and national defence equipment. China, which dominates global production of the elements, began requiring export licences in early April, a move widely viewed as a response to blistering tariffs imposed by Trump. The two sides agreed after talks in Geneva in May to temporarily lower steep tit-for-tat tariffs on each other's products. China also committed to easing some non-tariff countermeasures, but US officials later accused Beijing of violating the pact and slow-walking export licence approvals for rare earths. They eventually agreed on a framework to move forward with their Geneva consensus following talks in London this month. A White House official also told AFP on Thursday that Donald Trump's administration and China had "agreed to an additional understanding for a framework to implement the Geneva agreement". That clarification came after the US president told an event that Washington had "just signed" a deal relating to trade with China, without providing further details. Beijing confirmed on Friday that an agreement had been reached. "It is hoped that the United States and China will meet each other halfway," a spokesperson for the commerce ministry said in a statement. It said both sides had "further confirmed the details of the framework". Under the deal, China "will review and approve applications for the export control items that meet the requirements in accordance with the law". "The US side will correspondingly cancel a series of restrictive measures against China," the commerce ministry said. Separately on Thursday, the White House also indicated that Washington could extend a July deadline when steeper tariffs affecting dozens of economies are due to kick in. Trump imposed a sweeping 10 per cent levy on most trading partners this year but also unveiled - then halted - higher rates on dozens of economies while negotiations took place. That pause is set to expire on Jul 9. When asked if there would be another delay, press secretary Karoline Leavitt told reporters: "Perhaps it could be extended, but that's a decision for the president to make. "The deadline is not critical. The president can simply provide these countries with a deal if they refuse to make us one by the deadline." This means Trump can "pick a reciprocal tariff rate that he believes is advantageous for the United States", she added.
CNA
2 hours ago
- CNA
US Treasury chief says key trade deals may come by September
WASHINGTON: US Treasury Secretary Scott Bessent said on Friday (Jun 27) that Washington could reach key tariff deals with over a dozen partners in the coming months and have its trade agenda wrapped up by early September. His comments to Fox Business come ahead of a Jul 9 deadline for steeper US duties to kick in on dozens of economies. Countries have been rushing to negotiate and reach trade pacts with Washington to avoid this outcome, although the White House recently suggested that President Donald Trump's administration could extend this deadline. On Friday, Bessent noted that Commerce Secretary Howard Lutnick has expressed expectations for 10 deals with trading partners. The Treasury chief reiterated that there are 18 key partners the United States is focusing on agreements with. "If we can ink 10 or 12 of the important 18, there are another important 20 relationships, then I think we could have trade wrapped up by Labour Day," Bessent said. That holiday falls on Sep 1. A day prior, Lutnick told Bloomberg Television when asked about the July deadline: "We're going to do top 10 deals, put them in the right category, and then these other countries will fit behind." White House Press Secretary Karoline Leavitt also told reporters Thursday that the deadline "could be extended, but that's a decision for the president to make". She said the date itself is "not critical". In April, Trump imposed a sweeping 10 per cent tariff on most trading partners and unveiled higher rates on dozens of economies before pausing them while negotiations took place. This halt is due to expire Jul 9.
