U.S. consumer spending rises again but Brexit could hurt confidence
U.S. consumer spending rose for a second straight month in May on increased demand for automobiles and other goods, but there are fears Britain’s vote to leave the European Union could hurt confidence and prompt households to cut back on consumption.
Wednesday’s fairly strong report released by the Commerce Department pointed to an acceleration in economic growth in the second quarter.
Still, economists worry that financial turbulence, following last Thursday’s so-called “Brexit” referendum, could hurt consumer confidence and cause households to bulk up their savings rather than increase spending because of an uncertain economic outlook.
“With the confidence-sapping eruption in global financial markets continuing to play out, we expect spending momentum to slow in the coming months ahead, adding a layer of uncertainty to the U.S. economic outlook going forward,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month after surging 1.1 percent in April. When adjusted for inflation, spending rose 0.3 percent after April’s 0.8 percent gain.
Despite the healthy consumer spending, Brexit made it unlikely that the Federal Reserve would raise interest rate soon, economists said. Fed Chair Janet Yellen told lawmakers last week that the U.S. central bank needed to be sure there was no shock from the outcome of the British referendum before tightening monetary policy further.
In the wake of the consumer spending report, the Atlanta Federal Reserve raised its second-quarter consumer spending growth estimate to a 4.3 percent annualized rate from a 4.1 percent rate. That pushed up its second-quarter GDP growth forecast one-tenth of a percentage point to a 2.7 percent rate.
“None of this is likely to matter for supposedly data dependent policy in light of the Brexit vote and the uncertainty pervading global financial markets,” said John Ryding, chief economist at RDQ Economics in New York.The Brexit referendum wiped off a record $3 trillion from global stock markets over two days. Stock markets in Europe, Asia and the United States have, however, since recouped some of the losses. U.S. stocks rose on Wednesday, with the main indexes gaining more than one percent in morning trade.
The dollar fell against a basket of currencies, while prices for longer-dated U.S. government debt rose.