"The U.S. Economy" Remains Worrisome as Consumer Confidence Dips

The U.S. economy continues to show troubling signs. New data released on Friday (August 28) local time indicates that American consumers increased their spending in July, but the rise was significantly less than in the previous two months. This comes despite a surge in COVID-19 cases during May and June, and consumer confidence in July remains categorized as "low."

As President Donald Trump prepares for his second presidential election, the economic recovery he hoped for from COVID-19 has yet to materialize. Analysts warn that without emergency government assistance, the economy is unlikely to recover anytime soon.

Lydia Boussour from Oxford Economics has warned in an analysis that economic momentum is at risk of stalling due to a lack of consumer confidence and a significant drop in disposable income. Additional financial assistance is necessary because if consumers are in poor financial shape, the overall economy is likely to remain shaky, with the worst-case scenario being a recession.

The U.S. Department of Commerce reported that personal consumption expenditures (PCE) in July increased by only 1.9% or $267 billion compared to June, down from increases of 6.2% and 8.6% in the previous two months.

Despite the increase, spending remains significantly lower than in February before the pandemic, when businesses nationwide were forced to shut down, resulting in tens of millions of job losses.

The report also indicated that personal income in July rose by 0.4% after two months of decline, which was attributed to compensation payments to employees to help the economy continue operating.

However, the reopening of the economy has coincided with a rise in COVID-19 cases in several states, leading to renewed lockdowns.

Government emergency aid funds also saw a significant decrease in July, as many programs ended on July 31. Currently, both the White House and Congress have been unable to break the deadlock on a new relief package, which would include assistance for state and local governments and an extension of unemployment benefits.

Additionally, Coca-Cola and MGM Resorts have become the latest major companies to announce significant layoffs due to reduced revenues during the COVID-19 pandemic.

MGM Resorts announced the layoff of 18,000 furloughed employees due to the uncertain future of the company, while Coca-Cola is cutting several business units and offering 4,000 employees in North America voluntary severance, with further reductions planned internationally.

After the U.S. reported a staggering 31.7% decline in GDP in the second quarter, economists expect GDP to recover in the third quarter, although there is uncertainty about the extent of that recovery. Last week, another 1 million Americans filed for unemployment benefits, while employment in July was down by 15 million compared to February before businesses had to close due to the pandemic.

The University of Michigan's consumer confidence index for August rose slightly from 72.5 to 74.1. Richard Curtin, the chief economist of the survey, noted that this figure remains in a low range that has persisted for five months.

At the same time, the PCE price index, a closely watched inflation measure by the Federal Reserve, also slowed, rising by 0.3% after a 0.5% increase in June. Compared to July 2019, the index increased by 1%.

On Thursday (August 27), the Fed announced a policy change, meaning it will allow inflation to exceed the 2.0% target for a period without raising interest rates to promote full employment. However, this focus on employment cannot be achieved until the economy is robust and inflation returns.

Excluding volatile food and energy prices, the PCE inflation rate in July rose only 0.3% and increased 1.3% compared to the same period last year.

SOURCE : www.bangkokbiznews.com