Inflation Edges Higher as U.S. Consumers Cut Spending

Consumer spending decreased in May because inflation rates continued to rise which made Americans more cautious in their financial decisions. The Commerce Department reported that core prices increased 2.7% from last year but this exceeded April's 2.6% increase while overall inflation reached 2.3% above the Federal Reserve's 2% target.

The first decline in consumer spending occurred in May when it decreased by 0.1% after January. The 0.4% decline in income stemmed from previous months' temporary rise in Social Security payments. Vehicle sales declined in May because of tariff concerns which negatively affected total consumer spending.

The economic indicators show that the economy is experiencing a slowdown. The 0.1% increase in services spending represented the smallest growth rate in four years while consumer sentiment deteriorated because of President Donald Trump's tariff policies that increased prices for appliances tools and electronics.

The economy faces challenges in job recovery because unemployment rates remain low while job creation remains slow. Consumer spending increased 0.5% during the first quarter and showed similar weak performance throughout the second quarter. The economy faces challenges to regain momentum during the second half of the year because analysts predict that stronger hiring and income growth are needed.