Interest payments have been eating up a growing share of American incomes this year amid aggressive Federal Reserve tightening. Now, rising oil prices are piling on, too.
Consumer spending on gasoline and interest combined accounted for 4.7% of US disposable income last month, the most since August 2014, according to Bureau of Economic Analysis figures published Friday. Interest payments alone, at 2.5% of disposable income, were the highest since September 2008.
Increases in the share of income going to either interest or gas often precede recessions, and the latest climb in both represents a dual headwind for the US economy as the Fed tries to return inflation to its 2% target without tipping economic activity into a backward slide.
Overall consumer spending rose just 0.1% in August after adjusting for inflation, marking the weakest reading since March. What that was a bit better than forecasters had anticipated, it was still a marked dropoff from July’s reading.
“Rising gasoline prices meant that real disposable incomes fell for a second straight month, and with consumers likely to increase precautionary saving as the labor market slows, we anticipate a sharper slowdown in consumption growth ahead,” Michael Pearce, the lead US economist at Oxford Economics, said Friday in a note to clients.
This article was provided by Bloomberg News.