Tuesday, August 2, 2016

U.S. CONSUMER SPENDING INCREASES IN JUNE

U.S. Consumer Spending Increased Solidly in June

Americans have capacity to remain the primary driver of economic growth


Shoppers walking by a Samsung store in Miami on July 15. ENLARGE
Shoppers walking by a Samsung store in Miami on July 15. Photo: Alan Diaz/Associated Press
WASHINGTON—Consumer spending increased steadily for the third straight month in June, suggesting Americans have capacity to remain the primary driver of economic growth this year.
Personal consumption, which measures how much Americans spent on everything from haircuts to cars, increased 0.4% in June from a month earlier, the Commerce Department said on Tuesday. Incomes rose more slowly, increasing 0.2% for the month.
Economists surveyed by The Wall Street Journal had expected personal spending to rise 0.3% in June. Income was projected to increase at the same rate.
Consumer spending also rose 0.4% in May and was up 1% in April. Each of those gains outpaced income growth.
Household spending accounts for more than two-thirds of economic output in the U.S. and has been a mainstay of the expansion. Consumer expenditures were a bright spot for the economy during the second quarter, advancing at the fastest rate in more than a year. The gain offset weaker business and government spending. The overall economy grew at a lackluster 1.2% annual pace.
“Just based on the trajectory for the spending data through June, we think that there is some modest upside” to third-quarter spending projections, said J.P. Morgan Chase JPM -0.50 % economist Daniel Silver. Consumer spending will need to remain firm for the economy to grow faster than the near 1% rate average over the past three quarters.
The June spending figures will be incorporated into revisions to gross domestic product later this month.
Americans may be saving less to fuel additional spending. The personal saving rate in June was 5.3%, the lowest since March 2015. The rate was 5.5% in May, and above 6% as recently as March.
The National Retail Federation raised it’s projection for full-year sales growth last week. While some traditional department stores have posted disappointing results, newer rivals like Hennes & Mauritz HMB -1.68 % AB’s H&M chain and discounters like TJX TJX -1.78 % Cos. have continued to expand. And online sales are growing at a robust rate.
“The disconnect between Main Street and the C-Suite continues as the consumer alone continues to shoulder the burden of keeping the economy going,” said economist Joel Naroff of Naroff Economic Advisors.
Meanwhile, Tuesday’s report showed still mild inflation pressures in the economy.
The personal-consumption expenditures price index, the Federal Reserve’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. Low inflation during that time has largely been a result of falling gasoline and oil prices. A firming of energy prices modestly pushed up the inflation reading earlier this year.
So-called core prices, which exclude the volatile categories of food and energy, also rose 0.1% from the prior month and were up 1.6% from a year earlier. The annual core reading has been consistent since March.
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 central bank took no action at a meeting last week, but noted risks to the economy had diminished, opening the door for a rate increase later this year.
Disappointing GDP growth in the second quarter could give the Fed pause. The change in July payrolls and the unemployment rate, due out Friday, will be another important factor.
When adjusting for inflation, Tuesday’s report showed consumer spending rose 0.3% in June. Inflation-adjusted disposable personal income—income after taxes—rose 0.1%.
Write to Eric Morath at eric.morath@wsj.com