Consumer Spending Increased, Unemployment Rate Remains High

Consumer spending has gone up after a flat line in June. According to the Commerce Department, consumer spending increased by up to 0.4 percent as of July. Last month’s reading was in line with the expectations published by many economists. Bear in mind that household consumption accounts for about 70% of the US economic activity.

Millan Mulraine, a senior macro strategist at the TD Securities, says that the increase in consumer spending is an indicator that the overall economic activity may be off to a decent start in the third quarter of this year.

However, the unemployment rate remains to be almost the same. The number of Americans who file for claims of jobless benefits remains the same for two consecutive weeks. This indicates a lack of strong improvement in the labor market. Additional monetary stimulus from the Federal Reserve will still be needed to keep the labor market from spiraling downwards.

Jobless Benefits Claimed

Based on the report published by the Labor Department, first-time applicants for state unemployment benefits remain unchanged at 374,000. But aside from the state unemployed benefits, private firms especially the lending companies have jobless benefits too. The four-week average of these claims rose from 1,500 to 370,250.

Under the jobless benefits of lending companies, a person may have the interest rates frozen to help him or her catch up with the payments. For bad credit loans, filing for unemployed benefits is important because the interest rate climbs up every after end of term, which is every 30 days.

When you are on jobless benefits, it is most probable that you can use your savings to pay for the daily expenses. If there are active bad credit loans with un-frozen interest rates, chances are that person will have a very hard time getting up financially even after securing a new job.

The Consumer Spending and Unemployment Relationship

Even though the data on consumer spending seems to be very promising, it may still plummet back to a flat line if the issue on unemployment is not resolved. This is because the state of the labor market determines whether the Federal Reserve would need additional monetary stimulus to keep the economy stable.

The main reason for the unemployment is the decrease in business spending. Basically, businesses do not trust the stability of the economy enough to pour in more money. This results in a reduction of employees hired and the limitations in business expansion.

Inflation Subdued

The sluggish consumer spending was the main reason for the slow economic growth from the April to June period. With the poor consumer spending, economic growth is only at a 1.7 percent annual pace.

The real spending last month was only lifted by the subdued pressures in inflation. The reason for the increased consumer spending last month can be attributed to the 0.3 percent increase in income.

With the increase in income and the increase in consumer spending, saving rate dropped from 4.2 percent in July to 4.3 percent. The housing market and consumer spending have gone up, if the employment rate will too, then that would mean that the US economy is back on track.