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U.S. Dollar Mixed After U.S. Personal Spending Stagnates in August

Tzu-Wen Chen

THE TAKEAWAY: U.S. real consumer spending stagnated in August > Economic recovery struggling to gain momentum > USDJPY mixed

Consumer spending in the U.S. stagnated in August, indicating that U.S. economic recovery is struggling to gain momentum. According to the Commerce Department, personal spending rose 0.5 percent in August, the largest gain since February, following a 0.4 percent rise the previous month. However, after adjusting for inflation, growth in real spending climbed a mere 0.1 percent, as the increase in spending was due largely to a 0.4 percent surge in prices. Core personal consumption expenditure rose 0.1 percent from a month ago and 1.6 percent year-on-year, in line with consensus forecasts of economists surveyed by Bloomberg News.

Meanwhile, personal income rose 0.1 percent in August, following a gain by the same amount in July. The consensus forecast of economists surveyed by Bloomberg News had projected a 0.5 percent gain in spending and 0.2 percent rise in income.

With income growth failing to keep up with the rising costs of food and gas, households are under pressure to tap into their savings. Recovery of the U.S. economy is likely to remain subdued, amid persistently high unemployment, stagnant wage growth and growing concerns about the impending fiscal cliff of tax increases and government spending cuts.

USDJPY 1-minute Chart: September 28, 2012

U.S._Dollar_Mixed_After_U.S._Personal_Spending_Stagnates_in_August___body_Picture_1.png, U.S. Dollar Mixed After U.S. Personal Spending Stagnates in August

Chart created using Market Scope – Prepared by Tzu-Wen Chen

The U.S. dollar surged against the Japanese yen in the first few minutes after the release of the PCE and spending data. However, trading quickly reversed directions, erasing the initial gains made by the greenback. At the time this report was written, the USDJPY pair was trading slightly higher at 77.61 yen.

--- Written by Tzu-Wen Chen, DailyFX Research

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