US Consumers Tighten Grip on Spending

02 August 2007

WASHINGTON DC: The parlous state of the US subprime mortgage market, which has set off alarm bells in financial markets worldwide, is also dampening consumer spending at home.

Figures from the Commerce Department show spending edged-up by just 0.1% in June, a slowing from May's 0.6% rise and the smallest increase since last September. Incomes rose 0.4% for the second consecutive month.

The gloom was slightly alleviated by the Conference Board's most recent research which showed consumer confidence in July at its highest for nearly a year at 112.6, compared with a reading of 105.3 in June. The survey was carried out, however, before the stock market skid.

Inflation was steady with core prices - excluding volatile food and energy - rising just 1.9% in the year ended June 30. The figure is within the Federal Reserve's preferred 1% to 2% range and an indication that interest rates will remain at 5.25%.

Says Scott Anderson, senior economist at Wells Fargo Bank: "We expect the Fed … to remain hawkish on future inflation risks, while acknowled-ging the recent improvement in inflation trends."

Data sourced from USA; additional content by WARC staff