The fears over another recession have been decreased due to a large rise in US retail sales for July. According to the Commerce Department, sales rose by 0.5% in July, the largest amount in four months. Additionally, June’s figures were adjusted to reveal a rise of 0.3%.
The last time the rise was above 0.5% was March, when the increase in sales was 0.8%. Spending rose on high cost items such as cars and furniture and everyday items such as fuel, reflecting the higher price. This would appear to be an increase in consumer confidence—however, a survey taken separately disclosed that confidence in the US has decreased quite quickly.
Due to the fact that consumer spending is two thirds of the entire US economic activity, it is monitored very specifically. This is especially important as the American economy affects all world economies.
Recently the people in the United States had to budget carefully, due to a rising rate of unemployment and high food and fuel costs. However, the information gathered describes a stronger economy than anticipated. Rudy Narvas, from Societe Generale in New York, said, “When you look at the overall data that’s been coming out, it’s really a mixed bag, and this shows that the economy is not falling off its wheels.”
Earlier in the week, the Federal Reserve revealed that it would keep a constant interest rate until mid 2013. It also predicted a rockier economy than was revealed today. The Thomson Reuters/University of Michigan survey calculated consumer confidence at 54.9 at the beginning of August. This is the lowest level confidence has been since May 1980.
Reasons for Inconfidence
The survey was conducted throughout the period of debate between President Obama and the House of Congress over the US debt. However it was also conducted before Standard and Poor stripped the nation from its AAA credit rating. Around 66% of those polled lacked confidence in the economy. Kurt Karl from Swiss Re in New York said, “It’s a big drop. It’s to be expected.
“The confidence was guaranteed to go down given all the upsets in the [stock] market. Hopefully this won’t be the precursor of consumers’ action in August.”
The news of the rise in spending, despite the lack of confidence, is good news for the global economy, which is closely related to the American economy. Chancellor Osborne said in Parliament’s meeting Thursday that other governments should focus on reducing their deficits, and mentioned the way the US dealt with their debt default specifically. Although the US should handle its debt, this news may set him slightly at ease about fears for the global economy.