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Inflation Rises As Consumer Spending Slows Down and Steadies

The Federal Reserve’s main inflation measure has risen more than it has in about 29 years as consumer spending has slowed down and steadied in May. Consumer spending has mainly slowed down as people shift from buying goods to investing in services. Auto purchases have greatly reduced consumer spending in retail industries, though certain retail stores continue to make profits. However, overall material and labor shortages nationwide has burdened parts of the economy and, if not fixed, could potentially hinder the growth the U.S. economy is supposed to have later this year and into the next.

Overall, consumer spending hasn’t changed in May, compared to April. While these numbers haven’t gone down in a month, they have steadied. Some analysts thought that consumer spending would rise by about 0.4% in May when compared to April.

However, this isn’t necessarily cause for concern yet. Many economists foresaw that Americans would shift from buying goods to buying and investing in services. During the COVID-19 pandemic, many people around the nation faced regulations that kept them from normal life, which in turn kept them from spending money on businesses normally. Consumer spending on goods rose as many were kept home.

Now that many Americans are fully vaccinated, the economy is speedily opening up. Consumer demand for both goods and services has resulted in an economic growth that could continue. If this economic growth does continue with no flaws, then we could see a growth not seen since the 1980s, or possibly even the 1950s.

As consumer spending on goods has now taken a breather, many expect consumer spending on services (such as restaurant spending or travel expenses) to go up. Many economists also believe that consumer spending overall will pick up again in the upcoming months. This is for many reasons. Many Americans have been able to save in the past year, which may increase overall spending. Rising household wealth from a variety of factors (such as because of gains from home values and stock prices) will also likely play a factor in the rise of consumer spending.

As of the latest reports, consumer spending on services has risen by 0.7%. Currently, the only potential issues consumer spending faces in the service sector are the material and labor shortages which haven’t yet been sorted out. Higher prices for certain services and goods may also hinder certain aspects of consumer spending.

As for the latest inflation news, consumers are reported to perceive the latest higher inflation as a temporary thing. A new survey suggested this positive news, which is also in line with what Fed Chair Jerome Powell and Treasury Secretary Janet Yellen have suggested. This may be very positive for the economy as a whole, as a consumer’s expectations of inflation can often influence a household’s behavior.

As many involved in the economy are still worried about inflation, this latest report is possibly the only positive news that has come out regarding inflation. Obviously, these expectations may change and could be adjusted as the economy continues to grow and reopen fully in the United States.

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