Consumer spending which makes up about two-thirds of U.S. economy looked extremely sluggish in April, a recent report shows, as Americans tended to focus more on saving rather than going on a spending spree.
But despite moody consumers, figures suggest that in the second quarter the U.S. economy is slowly but steadily regaining momentum.
Moreover, a Monday report showed that in early May manufacturing industry, which accounts for about 12 percent of the U.S. economic activity, experienced a clear rebound in more than seven months. Also, construction spending is at its highest in more than six years, official data show.
Nevertheless, despite the good news, the Federal Reserve may not hike its benchmark interest rate before the end of the year. The two main concerns of the central bank are a weak consumer spending growth and stalled inflation.
According to the Commerce Department’s reports, U.S. consumer spending growth remained unchanged in April though economists had forecast a 0.2 percent rise after a 0.5 percent spike in March.
Consumer spending was curbed by meager car sales in the first quarter, and weaker demand for utilities and gas as weather got warmer. The personal expenditures price index (PCE), or the PCE price deflator, which is a barometer of the increase of prices for all domestic personal consumption, gained only 0.1 percent over the last 12 months.
The PCE’s benchmark level is the one recorded in October 2009, while the index is the Federal Reserve’s favorite reading to measure nationwide level of inflation. However, the indicator fared better in March when it gained 0.3 percent.
But leaving aside energy and food prices, the PCE index jumped 1.2 percent from 2014.
All in all, the good news is that manufacturing and construction sectors are experiencing a strong rebound. According to the Institute for Supply Management, the index that reflects manufacturing activity across the U.S. rose to 52.8 in May from 51.5 two months ago. The institute explained that a reading above 50 suggested that the sector experiences expansion.
Manufacturing faced a prolonged decline in the last seven months due to a strong dollar, major spending cuts in the energy industry due to low gasoline prices, and labor disputes at the West Coast ports. The Institute for Supply Management said that a surge in orders and employment pushed the indicator up.
On Monday, the Commerce Department reported that construction spending rose by 2.2 percent, which is the best reading since November 2008.
“The construction and manufacturing data cast a bit of sunshine on an otherwise cloudy day for economic data,”
concluded Diane Swonk, chief economist at a Chicago-based independent financial services firm.
Image Source: Canadian Metal Working
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