Consumer spending growth is slowing as the economy stabilizes, with consumers prioritizing essential purchases and adjusting their spending habits in response to rising interest rates and financial pressures.
British consumers' mood improved in August as lower inflation eased concerns about personal finances, although overall sentiment remained poor due to worries about the wider economy, according to a survey by GfK.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which may lead to softer consumer spending and sideways movement in the stock market for the rest of the year, according to experts. Additionally, the resumption of student loan payments in October and the American consumer's credit card debt could further dampen consumer spending. Meanwhile, Germany's economy is facing a recession, with falling output and sticky inflation contributing to its contraction this year, making it the only advanced economy to shrink.
Prices in British shops have risen at their slowest rate since October, with a 6.9% increase in the year to August, due to rising costs of meat, potatoes, and cooking oil, as well as a reduction in grain exports from Ukraine and export restrictions on rice from India, according to the British Retail Consortium.
Consumer spending in China rebounded in August, with all categories, including apparel, automotive, food, furniture, appliances, and luxury, experiencing increased sales compared to July, according to a survey by the China Beige Book. Retail sales in July rose by 2.5% year-on-year, raising concerns about China's economic growth, but the August survey showed a surge in spending, particularly in the services sector, which saw continued strength in travel and hospitality. Additionally, corporate borrowing increased as the cost of capital declined, indicating a boost in business activity. However, China's property sector continued to worsen, with house prices barely growing and home sales declining.
Consumer spending in the US jumped 0.8% in July, the strongest monthly gain since January, driven by purchases of restaurants, live shows, toys, games, and recreational equipment; however, underlying data suggests that this spending may be on borrowed time.
Consumer spending is driving third-quarter GDP growth, but unsustainable spending habits, tightening lending standards, and the depletion of pandemic savings may lead to a decline in consumer spending in early 2024.
British factories in August experienced their weakest month since the start of the COVID-19 crisis due to shrinking orders caused by rising interest rates, according to a survey, resulting in a decline in purchasing activity, inventory holdings, and staffing levels. However, the slowdown in domestic and export demand has alleviated inflation pressures, potentially leading to a decrease in goods price inflation. With the economy showing signs of a slowdown, the Bank of England is expected to raise rates for the 15th consecutive time, despite concerns that it may lead to a recession.
U.S. consumer spending increased in July, boosting the economy and reducing recession risks, but the pace is likely unsustainable as households dip into their savings and face potential challenges from student debt repayments and higher borrowing costs.
Retail sales in the UK increased by 4.1% in August, with non-food items experiencing the strongest growth due to higher spending on health and beauty, although clothing and footwear sales were weaker; however, the increase in sales was partly driven by rising prices, indicating that consumers are buying fewer items but spending more.
The U.S. economy experienced modest growth in July and August, driven by pent-up demand for leisure activities, while nonessential retail sales slowed, according to the Federal Reserve's "Beige Book" survey.
China's consumer prices rose slightly and the decline in factory-gate prices slowed in August, indicating easing deflation pressures and signs of stabilization in the economy, although more policy support is needed to boost consumer demand.
U.S. retail sales rose more than expected in August due to higher gasoline prices, but underlying spending on goods slowed as Americans faced increased inflation and borrowing costs, while the trend in underlying spending on goods was not as robust as initially thought in July. Despite this, overall consumer spending is expected to remain strong, driven by spending on services.
U.S. consumers have significantly reduced their spending over the past six months and plan to continue doing so during the upcoming holiday season, with the majority cutting back on non-essential items and essential items.
Inflation in Britain slowed for a third consecutive month in August, defying expectations of a rise due to higher fuel prices, with consumer prices rising 6.7 percent compared to the previous year, driven by slower increases in food prices and a decline in hotel room costs. Core inflation also fell more than anticipated, indicating a potential easing of inflationary pressures, though price growth remains uncomfortably high. The Bank of England is set to announce its decision on interest rates, with growing speculation that rates may be held steady due to signs of slowing inflation and a weak economy.
Inflation in the UK fell to 6.7% in August, the lowest level in a year-and-a-half, driven by slower food price increases and a drop in hotel and air fare costs, although fuel prices rose; economists had expected the figure to increase due to rising fuel prices.
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