With yet more talks of a Fed rate hike (but nothing yet announced), the true test of the American economy is income levels and consumer spending; In July both these numbers increased, though spending appears to be growing at a slower pace than expected
More specifically, spending grew only about 0.3 percent in July, after showing 0.5 percent growth in June. The Commerce Department also said, though, that they expected this slowdown after an earlier report showed flatter retail sales in July. Still, incomes grew 0.4 percent in July, which is up from a growth rate of 0.3 percent in June.
So growth is slow, but consistent. As such, though, economists are now counting on solid gains within the consumer spending metric, a stat that accounts for 70 percent of economic activity, to support overall growth in the US through the second half of this year.
Economists anticipate this can be possible because they expect this slight decelaration in spending will be quickly followed by another stronger spending period. For example, spending durable goods—like automobiles—grew 1.6 percent while spending on nondurable goods slipped a little.
Now, the overall economy of the United States—as measured according to the gross domestic product—grew at the snail’s pace of only 1.1 percent in the April-to-June quarter, contributing yet again to a full year of only incremental 1.2 percent growth. However, economists now believe that the many obstacles that had been holding back growth are easing up, leaving more room for the growth we need.
And with that, Federal Reserve chair Janet Yellen said, in a speech on Friday, that the activity over recent months certainly helps strengthen the case for raising interest rates, particularly on the heels of a solid job market and improved overall outlook on the American economy.
But what has been keeping the Fed from making any moves is ultra-low inflation. With a job market on the rebound, though, private economists believe the Fed could potentially raise rates as soon as next month; a higher percentage, though, believe that December is the most likely target.