Consumer Spending Shrinks but Confidence Rises - Economic Stimulus Fading for Consumers
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STIMULUS FADING
"With the tax refund effect on spending now more or less over, we
think the worst is yet to come for consumers," said Ian Shepherdson, an
economist with High Frequency Economics in Valhalla, New York.
The government issued $13.7 billion stimulus checks to U.S.
households last month -- about half of the amount sent out in June. By
the end of July, $90 billion had been delivered as part of the effort
to put an extra $107 billion in consumers' hands this year.
Consumer prices rose by a sharp 0.6 percent last month, pushing the
year-on-year rise in the personal consumption expenditures price index
up to 4.5 percent, the highest since February 1991.
Much of the increase was due to fast rising food and energy prices.
But even with those costs stripped out, prices gained 0.3 percent from
June and were up 2.4 percent over the past year, the biggest annual
gain since February 2007.
Other reports showed that business activity in the Midwest expanded
in August at a stronger rate than expected as new orders jumped, while
New York City's economy shrank for a third straight month.
The Institute for Supply Management-Chicago business barometer
surged to 57.9 in August from 50.8 in July. Economists had forecast the
index at 50.0, straddling the line between expansion and contraction.
Separately, the National Association of Purchasing Management-New
York said its index of current business conditions rose to 45.3 in
August from 38.5 in July.
The reports showed business managers continued to face stiff production costs.
While fast-rising food and energy prices have taken a big toll on
U.S. consumers and businesses, a big drop in the price of oil since a
record high reached last month could soon offer a wave of relief.
(Additional reporting by Burton Frierson and Pedro Nicolaci da Costa
in New York and Ros Krasny in Chicago; Editing by James Dalgleish)
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