Con­sumer spend­ing ane­mic in June

Re­port shows flat in­come growth

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - COM­PILED BY DEMO­CRAT-GAZETTE STAFF

WASH­ING­TON — Con­sumer spend­ing slowed in June as in­come growth turned in the weak­est per­for­mance in seven months, the Com­merce Depart­ment re­ported Tues­day.

Spend­ing edged up a tiny 0.1 per­cent com­pared with a 0.2 per­cent rise in May. It was the weak­est show­ing since spend­ing in­creased a sim­i­lar 0.1 per­cent in Fe­bru­ary. In­comes were flat in June after a 0.3 per­cent rise in May. It was the worst read­ing since in­comes fell 0.1 per­cent in Novem­ber.

Spend­ing is closely watched be­cause it ac­counts for 70 per­cent of eco­nomic ac­tiv­ity. Even with the weak­ness in June, spend­ing for the April-June quar­ter re­vived, help­ing to lift over­all eco­nomic growth to a solid rate of 2.6 per­cent dur­ing the quar­ter. Econ­o­mists be­lieve solid job growth will keep eco­nomic growth at healthy lev­els this quar­ter.

An­drew Hunter, a U.S. econ­o­mist with Cap­i­tal Eco­nomics, said the new re­port showed that con­sumer spend­ing had lost some mo­men­tum at the end of the sec­ond quar­ter, “which isn’t a par­tic­u­larly promis­ing sign go­ing into the third quar­ter.”

The slow­down in in­come growth re­flected

de­clines in div­i­dend and in­ter­est pay­ments and other in­vest­ment in­come. The key cat­e­gory of wages and salaries ac­tu­ally rose a solid 0.4 per­cent in June, re­flect­ing strong em­ploy­ment growth dur­ing the month.

An in­fla­tion gauge tied to con­sumer spend­ing that is closely fol­lowed by the Fed­eral Re­serve was up 1.4 per­cent for the 12 months end­ing in June, com­pared with a 1.5 per­cent in­crease in May. It was the small­est 12-month gain since Sep­tem­ber and showed that in­fla­tion is con­tin­u­ing to fall fur­ther from the Fed’s tar­get for prices to be ris­ing by 2 per­cent an­nu­ally.

The cen­tral bank left its key in­ter­est rate un­changed at a meet­ing last week after rais­ing the rate in March and June. Some econ­o­mists be­lieve the Fed will not raise the rate again this year un­less in­fla­tion re­sumes ris­ing to­ward the Fed’s 2 per­cent tar­get.

Many econ­o­mists be­lieve the slow­down in in­fla­tion will at least keep the Fed on hold at its next meet­ing in Sep­tem­ber. But Hunter said he still ex­pects one more rate in­crease this year, prob­a­bly in December, prompted by fur­ther de­clines in the un­em­ploy­ment rate, which al­ready is at a low 4.4 per­cent.

With in­comes flat and spend­ing show­ing a tiny gain, sav­ing slipped to 3.8 per­cent of after-tax in­come, down from 3.9 per­cent in May.

The 2.6 per­cent in over­all growth, as mea­sured by the gross do­mes­tic prod­uct, in the sec­ond quar­ter was more than dou­ble the lack­lus­ter 1.2 per­cent gain in the first quar­ter.

U.S. con­struc­tion spend­ing de­clined in June for the sec­ond time in three months, as spend­ing on gov­ern­ment con­struc­tion pro­jects plunged by the most in 15 years.

Con­struc­tion spend­ing fell 1.3 per­cent in June, the big­gest drop since a 1.8 de­cline in April, the Com­merce Depart­ment re­ported Tues­day. Spend­ing rose a tiny 0.3 per­cent in May.

The de­cline raises con­cerns that con­struc­tion may not pro­vide as much sup­port for the over­all econ­omy as had been ex­pected in the sec­ond half of the year.

The only pos­i­tive read­ing in June was in non­res­i­den­tial con­struc­tion, which ticked up 0.1 per­cent.

Home con­struc­tion de­clined 0.2 per­cent, the third con­sec­u­tive de­crease in that cat­e­gory. Gov­ern­ment spend­ing fell 5.4 per­cent, the big­gest drop since a 6 per­cent de­cline in March 2002.

The 0.1 per­cent rise in non­res­i­den­tial con­struc­tion fol­lows a 0.6 per­cent in­crease in May, with both gains fol­low­ing sev­eral months of de­clines. The gain in June was helped by a strong 2.9 per­cent in­crease in spend­ing on of­fice con­struc­tion, which off­set a 0.4 per­cent de­cline in the cat­e­gory that in­cludes shop­ping centers.

Over­all spend­ing was re­ported at a sea­son­ally ad­justed an­nual rate of $1.21 tril­lion, com­pared with last month’s re­vised fig­ure of $1.22 tril­lion.

Amer­i­can man­u­fac­tur­ers turned in an­other solid month in July amid steady growth in pro­duc­tion, or­ders and em­ploy­ment, ac­cord­ing to fig­ures that the In­sti­tute for Sup­ply Man­age­ment re­leased Tues­day.

The In­sti­tute for Sup­ply Man­age­ment factory in­dex fell to 56.3 from 57.8 a month ear­lier; read­ings above 50 in­di­cate growth. The em­ploy­ment gauge cooled to 55.2 from 57.2.

While the In­sti­tute for Sup­ply Man­age­ment in­dex set­tled back from a June level that was the sec­ond-high­est since 2011, it re­mains above the av­er­age over the past year, as are its three main gauges. The fig­ures sig­nal that op­ti­mism about the econ­omy is en­dur­ing among Amer­i­can busi­nesses even as prospects dis­si­pate for swift changes on tax and in­fra­struc­ture pol­icy from Wash­ing­ton law­mak­ers.

“I don’t see why there’d be any sig­nif­i­cant change, out­side of any ma­jor in­ter­na­tional dis­rup­tion,” Tim Fiore, chair­man of the In­sti­tute for Sup­ply Man­age­ment’s factory sur­vey com­mit­tee, said about the pos­i­tive tra­jec­tory for U.S. man­u­fac­tur­ing. “We have un­em­ploy­ment that’s very low, pres­sure on wages. Sup­plier short­ages are still there.”

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