Consumers Ramped Up Spending in August as Inflation Remained Elevated

 

In August, personal spending increased by 0.8 %. Personal income increased by 0.2% which reflects the increase in wages and federal government’s distribution. However, some states ended their pandemic related supplemental payments. During the peak of covid, consumers spent less on airline tickets, hotels and dining outside, and now they have accumulated substantial savings and furthermore, are benefitting from increase wages and abundance in job openings. Chief Economist at RSM US LLP, Joe Brusuelas, thinks that the demand for the next 2 to 3 years should remain strong as the growth continues well above the long-term trend. He also thinks that due to the excessive demand supply shortages may create some hurdles. Such as, global chip shortage has adversely affected the auto industry as well as the tech industry. To be more specific, Ford paused their production due to chip shortage, as well as Apple Inc. as they are overdue for a new MacBook Pro, but due to supply chain issues they have pushed back the launch. The biggest source of U.S. economic growth and the main tool for rapid recovery from the pandemic is consumer spending, and the economy expanded from 6.3 % in the first quarter to 6.7% in the second quarter. Consumers avoided purchases of vehicles which may reflect high prices and low inventories. However, according to University of Michigan’s survey, the consumer sentiment index increased from 70.3 in August to 72.8 in September.  Analysts expect that consumers are to spend more during this holiday shopping season than last year, since consumers were not able to shop during the pandemic. In addition, consumers are also booking in advance for the upcoming months.

 

Thus, if the consumer demand exceeds the supply of the good and services, an example of this would be chip shortages, the price would increase, and if this goes on inflation would increase.

 

 

Cambon, S. C. (2021, October 1). Consumers ramped up spending in August as inflation remained elevated. The Wall Street Journal. Retrieved October 1, 2021, from https://www.wsj.com/articles/consumer-spending-personal-income-inflation-august-2021-11633027180?mod=hp_lead_pos4.