You are here

Americans kept spending in June to end better second quarter

[WASHINGTON] American households kept spending in June, capping a stronger quarterly performance for the biggest part of the economy.

The 0.2 per cent increase in purchases followed a 0.7 per cent May advance, Commerce Department figures showed Monday in Washington. The June gain matched the median forecast of economists in a Bloomberg survey. Incomes climbed 0.4 per cent for a third month.

Americans, enjoying a hiring pickup and no longer fettered by high prices at the gas pump, helped the economy stir last quarter after an early-year slumber. A tempering of spending at the end of the quarter shows stronger wage growth is probably needed to convince more consumers to open their wallets with greater frequency and allow the economy to build momentum.

"Wage growth is still a bit of an issue - you're really not seeing a whole lot of acceleration," said Gennadiy Goldberg, a US strategist at TD Securities LLC in New York, who correctly projected the rise in consumer purchases. While the June figures show "a little bit weaker hand-off into the third quarter," he said, "overall, we're chugging along pretty decently here."

The June gain helped spending increase in the second quarter at a 2.9 per cent annualized rate, up from a 1.8 per cent pace in the first three months of the year and stronger than the 2 per cent average from 2010 through 2014.

Projections for June consumer spending in the Bloomberg survey of 62 economists ranged from no change to a 0.4 per cent increase. The previous month's reading was initially reported as a 0.9 per cent advance.

The Bloomberg survey median called for incomes to rise 0.3 per cent. May's income reading was revised down from a previously reported 0.5 per cent gain.

Disposable income, or the money remaining after taxes, rose 0.2 per cent in June from the prior month after adjusting for inflation. The saving rate climbed to 4.8 per cent from 4.6 per cent in May.

The data showed that after adjusting for inflation, in order to generate the figures used to calculate gross domestic product, purchases were little changed in June after a 0.4 per cent gain in May.

Sustained momentum in consumer purchases will be needed to keep US growth chugging along. The economy grew at a 2.3 per cent pace in the second quarter as household spending advanced more than projected, Commerce Department data showed last week.

Spending on durable goods, including automobiles, fell 1.1 per cent in June after adjusting for inflation, following a 1.3 per cent jump in May, according to Monday's report.

The auto industry has remained a bright spot for consumer spending and factory activity. June sales of cars and light trucks totaled 17.1 million at an annual rate, capping the strongest quarter since 2005, after a 17.7 million pace a month earlier, based on data from Ward's Automotive Group.

Purchases of non-durable goods, which include gasoline, were little changed, while outlays on services advanced 0.2 per cent.

The report also showed the price index tied to consumer spending increased 0.2 per cent in June from the prior month. It rose 0.3 per cent from June 2014. This inflation gauge is preferred by Federal Reserve policy makers and it hasn't reached their 2 per cent goal since April 2012.

Stripping out the volatile food and energy categories, the price measure climbed 0.1 per cent from May and rose 1.3 per cent in the 12 months ended in June.

"Inflation is anticipated to remain near its recent low level in the near term," the Fed officials repeated in a July 29 statement at the conclusion of their two-day meeting in Washington. The central bankers said they see inflation rising "gradually" toward their goal "as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate."

While lower fuel costs are one reason consumers are spending, gains in worker pay have been lackluster. Wages climbed in the second quarter at the slowest pace on record. The 0.2 per cent advance was the smallest in data going back to 1982 and followed a 0.7 per cent increase in the first quarter, the Labor Department said Thursday.

"Despite some improvement in consumer confidence and the jobless rate over the past several years, the middle class has been largely left out of the economic recovery," Campbell Soup Co. Chief Executive Officer Denise Morrison said on a July 22 conference call. "Volatility and uncertainty persist, and consumer spending remains cautious."