The Economy

Consumer Spending Keeps Up Solid Growth

With a 0.4% gain in June, personal consumption has showed strong increases for three straight months and again outpaced personal income growth.
Matthew HellerAugust 3, 2016

Consumer spending continued to be a bright spot for the U.S. economy in June, but inflation remained well below the Federal Reserve’s target.

The Commerce Department said Tuesday that personal consumption, which measures how much Americans spent on everything from haircuts to cars, increased 0.4% last month from May. Economists surveyed by The Wall Street Journal had expected a 0.3% gain.

The June data followed last week’s gross domestic product report, which showed that consumer spending rose at a 4.2% rate in the second quarter, accounting for almost all of the economy’s 1.2% growth and offsetting weaker business and government spending.

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“While the second quarter’s robust pace of consumer spending will probably not be repeated, economists are optimistic that spending will remain solid, underpinned by steadily increasing wages as the labor market tightens, as well as rising house and stock market prices,” Reuters said.

Personal income, including wages and salaries, gained a moderate 0.2% in June, according to the Commerce Department, and has risen steadily in recent months as employee earnings have picked up. Economists had predicted a 0.3% increase.

But inflation pressures remain mild, with Tuesday’s report showing the personal-consumption expenditures price index, the Fed’s preferred inflation measure, increased 0.1% in June from the prior month. The index was up 0.9% from a year earlier.

Inflation hasn’t hit the Fed’s 2% target for more than four years. “Fed officials are watching key metrics such as inflation and income as they weigh another move on the central bank’s benchmark interest rate,” The Wall Street Journal noted.

Economists say low inflation, together with weak business investment and the second quarter’s anemic growth in GDP, could encourage the Fed to keep interest rates at the current low levels for a while.

“The continued buoyancy in consumption expenditures points to a favorable handoff to the third quarter, but the soft price pressures add to the narrative of the weakening inflationary backdrop, which will argue for caution at the Fed,” Millan Mulraine, deputy chief economist at TD Securities, told Reuters.