WASHINGTON, Oct 1 Reuters - In August U.S. consumer spending increased more than expected, but a downward revision of July data brought intact expectations that economic growth slowed in the third quarter as a resurgence of COVID infection curbed demand for services.
The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rebounded 0.8% in August, shrugging off declining motor vehicle sales caused by a global shortage of semiconductors, which is undercutting the production of automobiles.
Data for July has been revised down to show spending slipping 0.1% instead of gaining 0.3% as previously reported. Reuters polled the economists with predict consumer spending up 0.6% in August. Spending was likely boosted by back to school shopping and child tax credit payments from the government.
Though spending is shifting back to products from services, the flare up in coronavirus cases in summer, driven by Delta variant, crimped demand for air travel and hotel accommodation as well as sales at restaurants and bars.
A growth of consumer spending is expected to recede during the third quarter and regain steam for the remainder of the year.
Infections are trending downward, which is already leading to a rise in demand for travel and other high contact services.
Consumer spending grew at a robust 12.0% annualized rate in the second quarter, accounting for much of the economy's 6.7% growth pace that raised the level of gross domestic product above its peak in the fourth quarter of 2019. The growth estimates for the third quarter are below a rate of 5.0%.
Consumer momentum will improve in the months ahead, driving the economy closer to a full post-pandemic recovery and keeping inflation hot, said David Kelly, chief global strategist with JPMorgan Funds in New York.
In August, the inflation continued its upward trend. The private consumption expenditures PCE price index, excluding volatile food and energy components, increased 0.3% after increasing by the same margin in July.
In the 12-month period to August, the so-called core PCE price index increased 3.6%, matching the gain in July.
The core PCE price index is the flexible 2% interest rate measure by the Federal Reserve for its preferred inflation measurement target. The Fed upgraded its Core PCE inflation projection for this year to 3.7% from 3.0% in June.
The U.S. central bank said it would likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more rapidly than expected.
Fed Chair Jerome Powell told lawmakers on Thursday that he anticipates some relief from high inflation in the months ahead.