Consumer spending, the engine of the US economy, was flat in May, while inflation continued to rise.
American consumers maintained a rapid spending rate in May, but as the government’s generous grants related to the pandemic faded, and some states opted out of the federal unemployment benefit program, income and savings declined.
The Bureau of Economic Analysis (BEA) said on Friday that personal consumption expenditures (PCE)-a measure of consumer spending-were the same as the previous month because the increase in service spending was offset by the decrease in service spending. commodity.
After adjusting for inflation, PCE fell 0.4% last month from April.
PCE is a closely watched indicator because consumer spending drives about two-thirds of economic growth in the United States. After rising sharply in March and continuing to climb in April, spending reached cruising heights in May.
BEA said in a press release that this plateau reflects “decrease in government social welfare” because last month there were fewer stimulus checks in U.S. bank accounts and some states opted out of federal unemployment benefits.
Although millions of Americans are still unemployed, because companies across the country are struggling to find workers, the weekly federal unemployment benefit of $300 has become a political football in the United States.
Some Republicans believe that federal subsidies are discouraging unemployed workers from finding jobs.
About 26 states in the United States said they are withdrawing from the federal pandemic unemployment assistance program, which includes the federal weekly recharge program.
But economists pointed to other reasons that may keep workers on the sidelines, from early retirement and lack of childcare services during the pandemic, to fear of contracting COVID-19. As companies reopen and expand across the board, labor bottlenecks may also cause a disconnect between the number of unemployed and the number of job vacancies that need to be filled.
The weakening of government stimulus measures was reflected in personal income in May, which fell by 2% from the previous month. Disposable income was hit harder, down 2.3%.
At the same time, due to the rollback of the pandemic restrictions, supply chain bottlenecks have increased raw material prices and put pressure on companies trying to expand their businesses, and inflation continues to rise.
The PCE price index-the Fed’s preferred inflation indicator-rose 0.4% last month. Excluding food and energy, it rose 0.5%.
Rising prices have hit the less affluent households particularly hard, as it erodes a larger share of their income.
However, for now, the managers of the Federal Reserve, the world’s largest economy, are prioritizing returning Americans to work rather than worrying about inflation.
Fed Chairman Jerome Powell has repeatedly stated that the current surge in inflation may only be temporary, and that the Fed has no plan to raise interest rates until the US job market recovers.