MW: Spending picks up in June, inflation stabilizes
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — The second quarter ended on a positive beat, with consumer spending accelerating while inflation stopped slowing down, the Commerce Department reported Friday.
The report fleshes out monthly details hidden in the quarterly data released Wednesday that showed the economy expanded at a modest 1.7% annual pace in the second quarter.
In June, consumers spending picked up while incomes lagged a bit. In current dollar terms, spending rose 0.5% in line with expectations on Wall Street. This is the fastest pace of spending since February and gives some hint that the economy might improve in the second half.
Incomes rose 0.3%, below Wall Street expectations of a 0.5% gain.
After adjusting for inflation of 0.4%, after-tax incomes slipped 0.1% in June and real spending increased 0.1%. It was the first drop in real disposable incomes since February.
Inflation stops falling
The personal-consumption expenditure index, which Federal Reserve officials say is a more accurate gauge of inflation than the better-known consumer price index, rose 0.4% on the month. The core rate of inflation, which excludes food and energy prices, rose 0.2%, as expected.
In the past year, the PCE price index has risen 1.3%, up from a 1.1% gain in May and a low of 0.9% in April.
The core PCE index was up 1.2%, the same pace as the past three months.
While inflation remains well below the Fed’s 2% inflation target, it is important for the central bank that it stabilized.
On Wednesday, the Fed said for the first time that “inflation persistently below its 2% objective could pose risks to economic performance.”
Fed officials added that they expect inflation will move back toward its objective over the medium term.
The language won the support for the statement of St. Louis Fed President James Bullard. He had dissented from the previous Fed policy statement in June because he said the central bank was not worried enough about low inflation.
Inflation does not have to be back at 2% for the Fed to start tapering its $85 billion-a-month asset purchase program, noted Jim O’Sullivan, chief U.S. economist at High Frequency Economics, before the data was released.
But additional slowing would have strengthened the argument of those Fed officials who want to delay the slowdown in the rate of purchases.
A sizable majority of economists think the Fed will start to taper in September, but it is not seen as a done deal.The July job report has been seen as crucial for the central bank’s policy decision.
In a separate report, the Labor Department said the economy added 162,000 jobs in July and the unemployment rate fell to 7.4%.
Details
With spending rising faster than income, the personal savings rate fell to 4.4% from 4.6%.
Nominal income from wages rose 0.5% in June after a 0.3% rise in May.
Proprietors’ income fell 1.6%. Income from transfer payments rose 0.2%.
Real spending on durable goods was flat in June after falling 0.1% in the prior month,
Real spending on nondurable goods increased 1.1%, and real spending on services rose 0.2%.
Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.
