In July, the U.S. retail sales report showed a surprising increase, despite the inflationary pressures and a series of Federal Reserve interest rate hikes. The Commerce Department reported a seasonally adjusted increase of 0.7% for the month, better than the 0.4% estimate. Excluding autos, sales rose a robust 1%, also against a 0.4% forecast. This indicates that consumers were able to keep ahead of price increases that have been prevalent over the past two years.
This data suggests that the U.S. economy may be able to avoid a much-predicted recession brought on by the Federal Reserve’s interest rate hikes aimed at controlling inflation. Despite the central bank increasing its key borrowing rate by 5.25 percentage points since March 2022, consumers, who power about two-thirds of the entire $26.8 trillion U.S. economy, have persevered.
This article highlights the resilience of consumers and the importance of consumer spending in driving economic growth. Despite facing challenges such as inflation and increased material and shipping costs, consumers have shown a willingness to spend, which is crucial for the economy’s health. It’s a valuable lesson for business and economics students on the importance of consumer confidence and spending in maintaining economic stability.
THINK LIKE AN ECONOMIST!
Q1. What is meant by an interest rate hike?
Q2. Explain how increasing interest rates is supposed to affect AD.
Q3. Evaluate whether increasing interest rates is the best way to tackle inflation.
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