US consumer spending exits Q2 with strong momentum

Consumers hold shopping bags as they walk along Michigan Avenue on July 29, 2016 in Chicago, Illinois.
Consumers hold shopping bags as they walk along Michigan Avenue on July 29, 2016 in Chicago, Illinois.PHOTO: AFP

WASHINGTON (REUTERS) - United States consumer spending rose more than expected in June as households bought a range of goods and services, suggesting consumption will likely remain strong after surging in the second quarter.

Despite healthy consumer spending, Tuesday's report from the Commerce Department showed inflation still muted. This could see a cautious Federal Reserve keeping interest rates at current low levels for a while.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.4 per cent in June after a similar gain in May. Economists polled by Reuters had forecast consumer spending advancing 0.3 per cent.

When adjusted for inflation, consumer spending rose 0.3 per cent after climbing 0.2 per cent in May.

The dollar trimmed losses against the euro and yen after the data. Prices for US government debt also pared losses, while US stock futures were trading lower.

The June data was included in last week's second-quarter gross domestic product report, which showed that consumer spending rose at a 4.2 per cent annual rate, the fastest in nearly two years. That jump accounted for almost all of the economy's 1.2 per cent growth pace during the period.

While the second quarter's robust pace of consumer spending will probably not be sustained, 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.

There was little sign of inflation in June. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.1 per cent in June after a 0.2 per cent gain in May.

In the 12 months through June the core PCE increased 1.6 per cent. It has risen by the same margin since March. The core PCE is the Federal Reserve's preferred inflation measure and is running below the US central bank's 2 per cent target.

Consumer spending in June was lifted by a 0.7 per cent rise in purchases of non-durable goods. Spending on services increased 0.5 per cent, but outlays on long-lasting manufactured goods such as automobiles fell 0.3 percent.

Spending increased despite personal income rising only 0.2 percent in June after a similar gain in May. Wages and salaries advanced 0.3 per cent after rising 0.2 per cent in May. With spending outpacing income, savings fell to US$732 billion, the lowest level since March 2015.