US consumer spending falls unexpectedly in May
Consumer spending, which accounts for more than two-thirds of economic activity, dropped 0.1 per cent last month after an unrevised 0.2 per cent gain in April, the Commerce Department's Bureau of Economic Analysis said on Friday (Jun 27). Economists polled by Reuters had forecast consumer spending would edge up 0.1 per cent.
President Donald Trump's sweeping tariffs, which have led businesses and households to front-run imports and goods purchases to avoid higher prices from duties, have muddled the economic picture. Economists warned it could take time for the tariff-related distortions to wash out of the data.
A record goods trade deficit in the first quarter, thanks to a deluge of imports, accounted for much of the 0.5 per cent annualised rate of decline in gross domestic product during that period.
Consumer spending also nearly braked last quarter after being propelled by households pulling forward goods purchases. Households also spent less on services last quarter, helping to restrain growth in consumer spending to only a 0.5 per cent pace, the slowest rate since the second quarter of 2020.
That data potentially puts spending on a slow growth path in the second quarter.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
The combination of soft consumer spending and inflation is, however, unlikely to spur the Federal Reserve to resume cutting interest rates in July. Fed chair Jerome Powell told lawmakers this week that the US central bank needed more time to gauge the impact of tariffs on prices before considering a rate cut.
Economists argue that price increases have remained moderate because businesses are still selling inventory accumulated before the tariffs went into effect. They expect inflation will start picking up, beginning with consumer price data for June.
The Personal Consumption Expenditures (PCE) Price Index gained 0.1 per cent in May, matching the rise in April, the BEA said. In the 12 months through May, PCE inflation increased 2.3 per cent after climbing 2.2 per cent in April.
Stripping out the volatile food and energy components, the PCE Price Index increased 0.2 per cent last month. That followed a 0.1 per cent rise in the so-called core PCE inflation in April.
In the 12 months through April, core inflation advanced 2.7 per cent after rising 2.6 per cent in April. The Fed tracks the PCE price measures for its 2 per cent inflation target. The central bank last week left its benchmark overnight interest rate in the 4.25 per cent-4.50 per cent range, where it has been since December. REUTERS
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
an hour ago
- CNA
Trump fires BLS commissioner, raising concerns about economic data quality
WASHINGTON: United States President Donald Trump fired the Labor Department's Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer on Friday (Aug 1) after data showed weaker-than-expected employment growth in July and massive downward revisions to the prior two months' job counts. Trump accused McEntarfer, who was appointed by former president Joe Biden, of faking the jobs numbers. There is no evidence to back Trump's claims of data manipulation by the BLS, the statistical agency that compiles the closely watched employment report, as well as consumer and producer price data. The US economy created only 73,000 jobs in July. Data for May and June were revised sharply down to show 258,000 fewer jobs created than had been previously reported. "We need accurate Jobs Numbers. I have directed my Team to fire this Biden Political Appointee, IMMEDIATELY. She will be replaced with someone much more competent and qualified," Trump said in a post on Truth Social. The BLS did not immediately respond to a request for comment. William Wiatrowski, the deputy commissioner, will serve as acting commissioner. The Trump administration's recent mass layoffs of federal government workers have raised concerns about the quality of US economic data, long seen as the gold standard. Economists, labour unions and Democratic Party leaders criticised the firing as an attempt by the Trump administration to manipulate data and warned of lasting damage to the economy. "The civil servants at BLS are not political actors. They are professionals committed to producing accurate, independent data, regardless of who is in power," said American Federation of Government Employees national president Everett Kelley. McEntarfer had worked in the federal government for more than two decades under multiple administrations, Kelley said. Trump-aligned Republicans were supportive of the BLS firing, calling McEntarfer a "Biden holdover". DATA CREDIBILITY NOW IN QUESTION "Politicising economic statistics is a self-defeating act," said Michael Madowitz, principal economist at the Roosevelt Institute's Roosevelt Forward. "Credibility is far easier to lose than rebuild, and the credibility of America's economic data is the foundation on which we've built the strongest economy in the world. Blinding the public about the state of the economy has a long track record, and it never ends well." Earlier this year, Commerce Secretary Howard Lutnick disbanded two expert committees that worked with the government to produce economic statistics. Lutnick has also floated the idea of stripping out government spending from the gross domestic product report, claiming "governments historically have messed with GDP". The BLS has already reduced the sample collection for consumer price data as well as the producer price report, citing resource constraints. The government surveys about 121,000 businesses and government agencies, representing approximately 631,000 individual worksites for the employment report. The response rate has declined from 80.3 per cent in October 2020 to about 67.1 per cent in July. "In my opinion, today's Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad," Trump wrote in another Truth Social post, without offering any evidence. Economists attributed the near-stall in job growth to Trump's trade and immigration policies. They said uncertainty about where Trump's tariff level would settle had made it difficult for businesses to plan long-term. More clarity has emerged as the White House has announced trade deals, but economists said the effective tariff rate was still the highest since the 1930s. Trump slapped dozens of trading partners with steep tariffs on Thursday, including a 35 per cent duty on many goods from Canada.
Business Times
2 hours ago
- Business Times
World economies reel from Trump's tariffs punch
[WASHINGTON] Global markets reeled on Friday (Aug 1) after US President Donald Trump's tariffs barrage against nearly all US trading partners as governments looked down the barrel of a seven-day deadline before higher duties take effect. Trump announced late Thursday that dozens of economies, including the European Union, will face new tariff rates of between 10 and 41 per cent. However, implementation will be on Aug 7 rather than on Friday as previously announced, the White House said. This gives governments a window to rush to strike deals with Washington, setting more favourable conditions. Neighbouring Canada, one of the biggest US trade partners, was hit with 35 per cent levies, up from 25 per cent, effective Friday, but with wide-ranging, current exemptions remaining in place. The tariffs are a demonstration of raw economic power that Trump sees putting US exporters in a stronger position, while encouraging domestic manufacturing by keeping out foreign imports. But the muscular approach has raised fears of inflation and other economic fallout in the world's biggest economy. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Stock markets in Hong Kong, London and New York slumped as they digested the turmoil, while weak US employment data added to worries. Trump's actions come as debate rages over how best to steer the US economy, with the US Federal Reserve this week deciding to keep interest rates unchanged, despite massive political pressure from the White House to cut. Data Friday showed US job growth missing expectations for July, while unemployment ticked up to 4.2 per cent from 4.1 per cent. On Wall Street, the S&P 500 dropped 1.6 per cent, while the Nasdaq tumbled 2.2 per cent. Political goals Trump raised duties on around 70 economies, from a current 10 per cent level imposed in April when he unleashed 'reciprocal' tariffs, citing unfair trade practices. The new, steeper levels listed in an executive order vary by trading partner. Any goods 'transshipped' through other jurisdictions to avoid US duties would be hit with an additional 40 per cent tariff, the order said. But Trump's duties also have a distinctly political flavour, with the president using separate tariffs to pressure Brazil to drop the trial of his far-right ally, former president Jair Bolsonaro. He also warned of trade consequences for Canada, which faces a different set of duties, after Prime Minister Mark Carney announced plans to recognise a Palestinian state at the UN General Assembly in September. In targeting Canada, the White House cited its failure to 'cooperate in curbing the ongoing flood of fentanyl and other illicit drugs', although Canada is not a major source of illegal narcotics. By contrast, Trump gave more time to Mexico, delaying for 90 days a threat to increase its tariffs from 25 to 30 per cent. But exemptions remain for a wide range of Canadian and Mexican goods entering the United States under an existing North American trade pact. Carney said that his government was 'disappointed' with the latest rates hike but noted that with exclusions, the US average tariff on Canadian goods remains one of the lowest among US trading partners. 'Tears up' rule book With questions hanging over the effectiveness of bilateral trade deals struck, including with the EU and Japan, the outcome of Trump's overall plan remains uncertain. 'No doubt about it, the executive order and related agreements concluded over the past few months tears up the trade rule book that has governed international trade since World War II,' said Wendy Cutler, senior vice president of the Asia Society Policy Institute. On Friday, Trump said that he would consider distributing a tariff 'dividend' to Americans. Notably excluded from Friday's drama was China, which is in the midst of negotiations with the United States. Washington and Beijing at one point brought tit-for-tat tariffs to triple-digit levels, but have agreed to temporarily lower these duties and are working to extend their truce. Those who managed to strike deals with Washington to avert steeper threatened levies included Vietnam, Japan, Indonesia, the Philippines, South Korea and the European Union. Among other tariff levels adjusted in Trump's latest order, Switzerland now faces a higher 39 per cent duty. AFP
Business Times
3 hours ago
- Business Times
Trump momentum drives stablecoin urgency in Asian financial hubs
[MUMBAI] Asian markets are hurriedly updating their stablecoin rules as US President Donald Trump's embrace of US dollar-pegged cryptocurrencies instils a fresh sense of urgency among the region's authorities. Recent developments in South Korea, Hong Kong, Malaysia, Thailand and the Philippines point to a proliferation of stablecoins pegged to Asian currencies, even as authorities raise concerns about capital outflows. Regional heavyweights including and Ant Group plan to capitalise by applying to become issuers. Shares in Kakaopay ballooned on expectations that it would do the same. Even China, which has for years imposed a sweeping crypto ban, appears to be warming to the notion of tokens that serve as yuan surrogates. It all stems from the US, where lawmakers recently passed legislation that will promote wider use of digital tokens that seek to maintain a 1:1 peg with the US dollar. The White House earmarked US dollar stablecoins as a priority in a January executive order, days after Trump's inauguration. 'The Genius Act has opened the floodgates for stablecoin adoption,' said Benjamin Grolimund, General Manager for the UAE at crypto exchange Flipster. 'Whether you support it or not, stablecoins are now unavoidable.' Overhanging Asia's flurry of activity is the fear of capital flight. The US dollar reigns supreme in today's stablecoin market, with US$256 billion in tokens pegged to the greenback. These maintain their price by managing reserves of cash-like assets, such as US Treasuries. By contrast, there's just US$403 million of euro-backed stablecoins in circulation, despite a well established regulatory framework covering such products in the form of the Markets in Crypto-Assets Regulation regime. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up The crypto-curious nation of South Korea offers a case in point. South Koreans are already trading piling into dollar-pegged stablecoins. Transactions involving USDT, USDC and USDS, three of the largest US dollar proxies, on five domestic exchanges reached 57 trillion won (S$53 billion) in the first quarter, Yonhap News reported, citing Bank of Korea data. Local lawmakers in recent weeks clashed with the central bank over whether to allow Korean companies to issue won-based stablecoins. President Lee Jae-myung's ruling Democratic Party on Jun 10 proposed the Digital Asset Basic Act, creating a pathway for local firms to become issuers. Two weeks later, Ryoo Sangdai, senior deputy governor at the Bank of Korea, warned that stablecoins may shift the country's longstanding policy stance on capital liberalisation and the won's internationalisation. Central bank governor Rhee Chang Yong went further, arguing that non-bank stablecoins would 'cause big chaos like in the 19th century', when currencies issued by the private sector flooded the market. 'Local stablecoins, while offering regulatory visibility at the point of issuance, carry the risk of becoming efficient bridges to global markets through seamless crypto-to-crypto swaps on decentralised exchanges,' said John Park, head of Korea at Arbitrum Foundation. Asian central banks need to find ways to channel the momentum, rather than fighting it, Park said. Regulatory frameworks should aim to preserve sovereignty while staying competitive, he added. Streamlined trading For digital-asset trading firms, a more diverse stablecoin market is a no-brainer. 'Capital controls are a challenge,' said Yoann Turpin, co-founder of crypto market maker Wintermute. 'But stablecoins could provide a vetted, more efficient on-chain system.' Such a setup could streamline arbitrage trades across venues or between markets without the constraint of foreign exchange market hours, said Le Shi, Hong Kong managing director at market making firm Auros. 'There's a real use case for local currency stablecoins, particularly for enabling weekend liquidity and smoother capital movement.' Another possibility is that the growth of local stablecoins could enliven crypto economies in Asia. In South Korea, an estimated 18 million people, over a third of the country's population, are engaged in digital assets. Sam Seo, chairman of the Kaia DLT Foundation, said a won-backed stablecoin would serve different needs than US dollar alternatives. 'In the short term, swaps between the won and USDT will dominate. But longer term, we will need stablecoins from other countries to support direct pairings and faster settlement,' Seo said. Hong Kong, meanwhile, has quickly become the region's stablecoin laboratory. The Hong Kong Monetary Authority is particularly focused on 'viable and practical use cases', not just capital buffers, Clara Chiu, founder of QReg Advisory, said. Many of the issuers that have taken an interest in yuan-backed stablecoins are trading and payment firms that are already using the yuan in cross-border settlement. 'That's where the practical demand lies,' Chiu added. Mainland interest While China's next steps are far from certain, crypto firms including brokers are already preparing for the prospect of yuan-pegged stablecoins. Kennix Chan, vice-president at Victory Securities, said the firm is in active talks with a range of would-be issuers in Hong Kong. The firm's affiliate, VDX, is close to securing a license to operate a digital-asset exchange, according to Chan, allowing it to offer new trading pairs – such as Bitcoin against stablecoins pegged to the Hong Kong dollar – and eventually yuan-backed equivalents. 'When a yuan-stablecoin is born, the market will definitely be exponentially bigger,' Chan said. Despite its blanket crypto trading ban, China appears to be warming to blockchain as a financial tool. People's Bank of China governor Pan Gongsheng said in June that stablecoins could revolutionise international finance, as rising geopolitical tensions highlight the fragility of traditional payment systems. A recent licensing upgrade granted for a major Chinese state-owned brokerage to deal in digital assets through Hong Kong has also stirred optimism among Chinese players. 'It gave hope that there's a way,' Chiu said. Still, few expect Beijing to open its doors to crypto trading anytime soon. Lily King, chief operating officer at digital-asset custodian Cobo, said that Hong Kong will continue to serve as a testing ground for Chinese enterprises looking to build overseas. 'China may not feel the need to open itself,' she added. BLOOMBERG
