US Consumer Spending Rises, Inflation Continues to Strengthen
Consumer spending increased solidly in June as US households spent more on restaurants and accommodation, building a strong base for the economy heading into Q-3, inflation rose moderately.
The Commerce Department said on Tuesday consumer spending, which accounts for nearly 70% of US economic activity, rose 0.4% last month.
The data for May was revised up to show consumer spending advancing 0.5% instead of the previously reported 0.2% increase.
Last month’s increase in consumer spending was in line with economists’ expectations.
The data was included in last Friday’s Q-2 GDP, which showed consumer spending accelerating at a 4.0% annualized rate during that period after a slow 0.5% pace in Q-1.
The economy grew at a 4.1% rate in Q-2, almost 2X the January-March frame’s 2.2% pace and the strongest performance in nearly 4 years. June’s increase in consumer spending sets it on a higher growth path heading into Q-3.
Consumer spending last month was boosted by spending at restaurants and on accommodation. Spending on goods was unchanged after surging 0.9% in May.
Spending on services accelerated 0.6% after rising 0.3% in the prior month.
Prices continued to steadily rise last month. The Fed’s PCE price index excluding the volatile food and energy components gained 0.1%. It had risen by 0.2% in May.
That kept the Y-Y increase in the core PCE price index at 1.9% for a 3rd month running. The core PCE index is the Federal Reserve’s preferred inflation measure. The core PCE hit the Fed’s 2% inflation target in March for the 1st time since December 2011.
Fed officials were due to start a 2-day meeting later Tuesday. They are expected leave interest rates unchanged after increasing borrowing costs in June for the 2nd time this year. The Fed has forecast 2more rate hikes by December
The moderate inflation helped to support consumer spending last month. When adjusted for inflation, consumer spending rose 0.3% in June after a similar gainer in May.
In June, personal income rose 0.4%, matching May’s increase. Wages gained 0.4%. The saving rate was unchanged at 6.8% last month.
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