WASHINGTON: US consumer spending increased solidly in June as households spent more at restaurants and on accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately.
Other data on Tuesday showed employers boosting benefits for workers in the second quarter, but wage growth slowed down. With savings at lofty levels and lower taxes increasing take-home pay for some workers, consumer spending is likely to remain strong this year and allow the Federal Reserve to continue gradually raising interest rates.
“More spending on ‘wants’, not ‘needs’, is always a good sign of consumer confidence,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “As long as incomes continue to rise and job creation remains strong, consumer spending should remain solid over the remainder of the year.”
The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4 per cent last month. Data for May was revised up to show consumer spending advancing 0.5 per cent instead of the previously reported 0.2 per cent increase.
Last month’s increase in consumer spending was in line with economists’ expectations. The data was included in last Friday’s second-quarter gross domestic product report, which showed consumer spending accelerating at a 4.0 per cent annualised rate during that period after a pedestrian 0.5 per cent pace in the first quarter.
The economy grew at a 4.1 per cent rate in the second quarter, almost double the January-March period’s 2.2 per cent pace and the strongest performance in nearly four years. June’s increase in consumer spending sets it on a higher growth path heading into the third quarter.
Consumer spending last month was boosted by spending at restaurants and on accommodation. Spending on goods was unchanged after surging 0.9 per cent in May. Spending on services accelerated 0.6 per cent after rising 0.3 per cent in May.
Prices continued to steadily rise last month. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components gained 0.1 per cent in June. It had risen by 0.2 per cent in the prior month. That kept the year-on-year increase in the so-called core PCE price index at 1.9 per cent for a third straight month. The core PCE index is the Fed’s preferred inflation measure. The core PCE hit the US central bank’s 2 per cent inflation target in March for the first time since December 2011. — Reuters
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