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U.S Consumer Spending Up Despite High Levels of Unemployment

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The U.S  economy had slowed down over the last two quarters, but according to the latest statistics, things are about to change for the third quarter, as consumer spending rose to a five month high, after stagating over the last three months. Reuters brought us this report.

U.S Consumer Spending Up Despite High Levels of Unemployment

According to the report, consumer spending was up 0.4 percent in July, after having recorded a near, null growth in June. Consumer spending accounts for 70% of the U.S economy and the recent growth, however small, is a clear indication that there is a likelihood of economic growth in the third fiscal quarter. This was, according to the report, the largest increase since February.

A senior economist at PNC Financial Services (NYSE:PNC) in Pittsburgh, Gus Faucher, is quoted by Bloomberg, saying, “the quarter is getting off to a decent start,” and added, “the consumer’s situation is slowly improving, but the job growth isn’t there to support really big gains in future spending.”

The senior macro strategist at TD Securities in New York, Millan Mulraine is also quoted on Reuters, saying, “The improvement in spending activity suggests that overall economic activity may be off to a fairly decent start in the third quarter.”

Interestingly, this level of growth was recorded despite a high levels of unemployment, which stands at approximately 8% since 2009, Bloomberg reported. this was further heightened by the increased number of people filing for unemployment benefits, which could add strain on economic recovery.

This is well illustrated by the Reuters report, whereby the number of first time applicants for state unemployment benefits remained unmoved at 374,000, while a moving average for new claims, showed an increment from 1,500 to 370,250. The report further goes on to indicate that jobless claims are already up by 10,000 for the month of August, while payrolls increased from 64,000 in June, to 163,000 in July.

Illustratively, the report notes that the median estimate was obtained from 76 economists, with results indicating a 0.5% growth in nominal sales , while incomes grew at 0.3%. Meanwhile, projected increases in consumer spending oscillated between 0.2% and 0.7%.

According to Paul Dales, a senior economist at Capital Economics, the current statistics are not good enough to prevent QE3, which is expected midway through September. However, several analysts are of the opinion that the government does not need a further quantitative easing to bolster economic growth, despite the weakening business spending and slowing inflation, while the Federal Reserve is aiming for 2% inflation rate

Other statistics indicate that the rate of saving was down to 4.2%  in July, after recording 4.3% in June, while the 12 months leading up to July, the core PCE price index increased 1.6 percent, which is the smallest rate since October of last year, which stood at 1.8%.

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