American consumers increased their consumer spending by 0.8 percent compared to the previous month.
(Photo: dpa)
Washington Despite high interest rates and inflation, the US economy is doing surprisingly well at the start of the second quarter. Both consumer spending and durable goods orders showed surprisingly strong growth in April.
American consumers increased their consumer spending by 0.8 percent compared to the previous month, the Commerce Department said on Friday. Economists surveyed by Reuters had expected growth to be only half as large, after a mini increase of 0.1 percent in March.
Private consumption is a cornerstone of the US economy, which grew by an annualized 1.3 percent in the first quarter, also thanks to consumer spending, while Germany slipped into a recession.
Industry is also still doing relatively well, although the interest rate hikes by the Fed have made investment loans significantly more expensive. Its new business in durable goods – ranging from toasters to airplanes – rose 1.1 percent in April.
Here, economists had expected a decline of 1.0 percent compared to the previous month, after there had already been a strong increase of 3.3 percent in March. “The order situation is a positive surprise,” said Helaba economist Ralfcircul. Industrial development remains solid, “albeit with less momentum”.
Interest rate hiked to contain inflation
The Fed has raised interest rates from almost zero to 5.00 to 5.25 percent since March 2022. It wants to catch the high inflation.
The inflation rate has recently fallen to 4.9 percent. However, it remains at an unusually high level. Nevertheless, most observers assume that the US Federal Reserve will not raise its key interest rate any further in June.
The development of personal consumer spending – a measure of inflation that the Fed pays particular attention to – shows that the risks of inflation are still high. This does not include the volatile food and energy costs.
This so-called PCE core index rose slightly in April from 4.6 to 4.7 percent. The Fed is targeting an inflation rate of 2 percent.
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