The latest report from the Federal Reserve reveals that U.S. economic activity experienced modest growth in June and July, accompanied by a cooling of inflation. However, there are signs of increasing financial strain among consumers.
Strong Consumer Spending
Surprisingly, consumer spending during the summer proved to be stronger than expected. This was primarily driven by a surge in spending on tourism and travel, as stated in the central bank's Beige Book survey.
Increased Reliance on Credit
Despite the increased spending, business contacts from certain districts noted that customers are increasingly relying on credit to support their expenditures, as their savings start to dwindle.
Credit Card Balances Reach Milestone
In line with this trend, a separate report released by the New York Fed last month revealed that credit card balances exceeded $1 trillion for the first time in the second quarter of 2023.
Price Growth Slows
Price growth has slowed across the country, according to most of the Fed's regional bank districts. Businesses are finding it increasingly difficult to pass on costs to customers who are more sensitive to prices. As a result, profit margins are falling for many companies.
Cooling Inflation Rates
The Labor Department's consumer-price index for July reflects a continued cooling trend in price pressures. Both the overall and core CPI, which excludes volatile food and energy categories, only rose by a mild 0.2% that month. Although annual inflation in July stood at 3.2%, significantly lower than June 2022's peak of 9.1%, it still surpasses the Fed's target of 2%.
Slower Hiring and Easier Retention
Hiring has generally slowed down, with employers reporting an easier time retaining employees, particularly in the transportation and manufacturing sectors. However, some businesses still struggle to find skilled labor for specific job roles. Despite this, businesses anticipate a cooling of wage growth in the remaining months of 2023.
Job Growth and Unemployment
The Labor Department's recent report revealed that U.S. employers added 187,000 jobs in August. However, the unemployment rate rose to 3.8% due to more individuals joining the workforce.