WASHINGTON – American consumers turned in another strong month of spending in June despite a decline in spending on autos.
Consumer spending rose a solid 0.4 per cent in June after an identical increase in May and a 1 per cent surge in April, the Commerce Department said Tuesday. The strength in June came from a surge in spending on nondurable goods, which offset a drop in spending on autos.
Personal income grew a moderate 0.2 per cent in June, matching May’s gain.
Economists say they think solid gains in hiring will support future growth in consumer spending, which accounts for about 70 per cent of economic growth. The economy expanded at a modest 1.2 per cent annual rate in spring. Analysts say they expect double that growth rate in the second half of 2016.
The 1.2 per cent growth in the gross domestic product in the April-June quarter was far below what economists had expected. A strong increase in consumer spending during the quarter was offset by weakness in other areas, including declines in business investment and the restocking of inventories.
Economists say they think that both those drags will lessen in the second half of this year and that consumer spending will remain strong. Spending grew at a 4.2 per cent annual rate in the spring, its strongest performance since late 2014.
Sal Guatieri, senior economist at BMO Capital Markets, said the strength in June spending showed a solid end to the second quarter that would provide momentum going into the third quarter.
“Another decent quarter for consumers, together with renewed inventory building, should anchor a near doubling in real GDP growth” in the current quarter, Guatieri wrote in a research note. He forecast GDP of 2.3 per cent in the current quarter.
With spending up in June at a faster pace than incomes grew, the saving rate slipped to 5.3 per cent of after-tax income, down from 5.5 per cent in May. The June figure was the smallest since an identical 5.3 per cent in March 2015.
Inflation as measured by a gauge tied to spending increased 0.9 per cent in June, compared with a year ago, while core inflation was up 1.6 per cent. Both gains were below the Federal Reserve’s 2 per cent target for inflation.
The Fed left a key interest rate unchanged at its meeting last week but upgraded its assessment of the economy, raising expectations the central bank might hike rates as soon as the next Fed meeting in September. But the weak GDP report on Friday has raised doubts about that timetable, with many analysts now thinking a rate hike will not occur until December.