Cooling Consumption in US Points to Decelerating Economic Growth

Young woman wearing protective mask and buying food in grocery store during coronavirus pandemic.

US consumer spending rose at its slowest pace in May, showing sign of Americans are reining in spending amid rising cost of living.

According to the US Bureau of Economic Analysis, household spending, as measured by the personal consumption expenditure report, rose by 0.2pc in May after a 0.6pc gain in April and a 1.2pc increase in March, adjusted for changes in prices, spending fell by 0.4pc following two months of 0.3pc gains.

Consumers are slowing the pace of purchases as inflation has surged to four-decade highs amid disrupted supply chains and rising energy costs.

Consumption has been a major contributor of U.S. economy, even as inflation hits 40-year highs. Now economists say there are signs that is beginning to change, as higher interest rates and slowing savings rates take a toll on families’ budgets as Americans say they’ve lost confidence in the economy with the consumer sentiment measures have plunged to record lows.

The heat of financial constraint certainly puts a dent on consumption as the Federal Reserve has reversed its easy money policies and embarked on its steepest pace of rate hikes in decades, saying it would rather risk recession than long-term high inflation.

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