WASHINGTON – Consumer spending rose a healthy 0.3% in June, slightly below the strong gains of the past three months, while incomes turned in a solid 0.4% gain for the fourth straight month.
The Commerce Department said Tuesday that the spending increase followed strong gains of 1% in March, 0.6% in April and 0.5% in May as the consumer rebounded following a lacklustre start to the year.
An inflation gauge favoured by the Federal Reserve showed prices rising 1.4% over the past year, well below the Fed’s 2% inflation target. Fed officials are widely expected to reduce their benchmark interest rate for the first time in a decade at this week’s meeting, in part because of the continued short-fall in inflation despite strong economic growth and unemployment at near a 50-year low.
The overall economy slowed to a growth rate of 2.1% in the April-June quarter from 3.1% in the first quarter as the trade deficit, which is a drag on growth, widened and businesses cut back on capital investment. The slowdown would have much more severe if consumers had not rebounded following a sharp slowdown in the first quarter.
Consumer spending grew at an annual rate of 4.3% in the second quarter after a disappointingly weak 1.1% gain in the first quarter. Economists are optimistic that consumer spending, which accounts for 70% of economic activity, will keep showing solid gains in the second half of this year.
The saving rate rose to 8.1% of after-tax incomes in June, reflecting annual revisions by the government which sharply boosted the previous figures.
The slower spending gain reflected a modest 0.4% rise in spending on durable goods such as autos after a sizzling 1.5% gain in May.