U.S. June Personal Spending Rises 0.1%; Core Prices Up 0.1%
By Shobhana Chandra
July 31 (Bloomberg) - Consumer spending in the U.S. increased in June at the slowest pace in nine months as near-record gasoline prices and falling home values forced Americans to cut back.
The 0.1 percent rise in spending followed a 0.6 percent increase in May, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation rose less than forecast.
Consumer spending, which accounts for more than two-thirds of the economy, will cede its role as a mainstay of the expansion as increases in exports and business investment propel a rebound in manufacturing. At the same time, more jobs and rising incomes will prevent spending from slowing even more, economists said.
``The consumer is going to be a weak spot,'' Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. ``Consumers are close to being tapped out. They're tired of high gasoline prices and tired of declining home prices.''
Consumers now also have to overcome an additional challenge as stock prices slump, economists said. When combined with falling home values, declining equity prices mean household wealth will barely grow. Last week's drop in the Standard & Poor's 500 index was the biggest in five years.
Incomes rose 0.4 percent in June for a second month, today's report also showed. Income was forecast to rise 0.5 percent, according to the Bloomberg News survey median.
Forecasts
Economists forecast spending would rise 0.1 percent, after an originally reported 0.5 percent increase in May, according to the median of 77 estimates in the Bloomberg survey. Estimates ranged from a decline of 0.2 percent to a gain of 0.5 percent.
The report's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, rose 0.1 percent for a fourth consecutive month. The gauge was up 1.9 percent from June 2006, the smallest increase since 2004.
Some Fed policy makers, including Ben S. Bernanke before becoming chairman, have said they'd prefer core inflation within a 1 percent to 2 percent range.
Adjusted for inflation, spending was unchanged in June, after increasing 0.2 percent the prior month, the report showed.
Because the increase in spending was smaller than the gain in incomes, the savings rate improved to 0.6 percent, from 0.4 percent the prior month.
Disposable income, or the money left over after taxes, also rose 0.4 percent for a second month. Adjusted for inflation, disposable income increased 0.3 percent.
Adjusted for Inflation
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, dropped 1.6 percent, the most since August. Purchases of non-durable goods were unchanged and spending on services, which account for almost 60 percent of all outlays, rose 0.2 percent.
Consumer spending rose at a 1.3 percent annual pace from April through June, a third of the previous quarter's increase and the smallest gain in more than a year, last week's report on gross domestic product showed.
The quarter ended on a bad note for automakers. June sales were the lowest in almost two years, according to industry figures. AutoNation Inc., the largest U.S. auto dealer, last month said its second-quarter revenue declined 6.8 percent.
``There is a direct link between housing and the distress it creates for the consumer around big-ticket items,'' Michael Jackson, AutoNation's chief executive officer, said in a July 26 interview from Fort Lauderdale, Florida.
Sears Holdings Corp., the biggest U.S. department-store company, and Home Depot Inc., the world's largest home-improvement chain, this month said profit will fall as declining home values hurt demand for furniture and building materials.
The housing market will ``remain challenging for the rest of 2007 and into 2008,'' Home Depot's Chief Financial Officer Carol Tome said in a statement July 10.
Declines in homebuilding and cooler consumer spending will cause economic growth to slow from last quarter's 3.4 percent annual rate, economists said.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Last Updated: July 31, 2007 08:30 EDT |
