Weak spending, inflation data point to soft U.S. economy

Weak spending, inflation data point to soft U.S. economy
# 31 August 2013 04:12 (UTC +04:00)

Baku-APA. U.S. consumer spending barely rose and inflation was tame in July, offering a cautionary note on the economy as the Federal Reserve weighs cutting back its massive bond-buying program, APA reports quoting Reuters.

Spending, which accounts for more than two-thirds of U.S. economic activity, could struggle to regain momentum as other data on Friday showed consumer sentiment fell this month.

The reports added to a number of signs that have suggested a loss of steam in the economy early in the third quarter after a fairly sturdy performance in the April-June period even in the face of higher taxes and lower government spending.

"There has been a lot of optimism about the economy accelerating in the second half of the year as the fiscal drag waned. The latest data suggests that's not happening," said Michelle Girard, chief economist at RBS in Stamford, Connecticut.

The Commerce Department said consumer spending ticked up 0.1 percent, restrained by weak outlays on utilities and automobiles. Adjusted for inflation, spending was flat.

It is not likely to rebound anytime soon. A separate report showed the Thomson Reuters/University of Michigan's consumer sentiment index slipped to 82.1 in August from 85.1 in July.

The drop reflected concerns about higher borrowing costs. Long-term interest rates have risen more than a percentage point over the last three months in anticipation of the Fed scaling back its support for the economy.

"Less confident individuals don't become more active shoppers," said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pennsylvania. "That does not bode well for growth."

U.S. financial markets were little moved by the data as investors kept a wary eye on developments in Syria. Stocks were trading lower, while U.S. Treasury debt prices were up. The dollar touched a four-week high against a basket of currencies.

With demand tepid, inflation pressures were subdued last month. A price index for consumer spending edged up 0.1 percent, slowing from a 0.4 percent rise in June.

Over the past 12 months, prices have risen only 1.4 percent. While that is the biggest increase since February, it is well below the Fed's 2 percent target.

Excluding food and energy, the price index for consumer spending nudged up 0.1 percent after advancing 0.2 percent in June. For the fourth month running, core prices were up just 1.2 percent from a year ago.