In the U.S.: Inflation-adjusted consumer spending falls in June

31 July 2012


There seems to be no improvement on Q1 of 2012 as “consumer spending lost momentum.”

Spending by American consumers fell in June for the first time in nearly a year when accounting for inflation, suggesting the economy lost momentum as it ended the second quarter.

Consumer spending, which makes up about 70 percent of economic activity, fell 0.1 percent when adjusted for rising prices, the Commerce Department said on Tuesday.

Before making price adjustments, spending was flat. That was just below the median forecast in a Reuters poll of 0.1 percent increase.

Pressure is rising on policymakers at the Federal Reserve to do more to help the sputtering economy. The faltering recovery also weighs on President Barack Obama’s hopes of reelection in November.

The Commerce Department had already reported that economic growth slowed over the entire second quarter as consumers spent at their slowest pace in a year. But Tuesday’s data showed consumer spending lost momentum throughout the period when taking inflation into account.

Household income rose in June by 0.5 percent – the most in three months – although consumers socked away part of the extra cash by saving more.

Analysts had expected a gain of 0.4 percent. After tax income climbed 0.3 percent in June when accounting for higher prices.

With price-adjusted incomes rising in June and consumption falling, the saving rate for households rose to 4.4 percent, its highest level in a year.

A report on Friday is expected to show the jobless rate holding at 8.2 percent in July. It has been above 8 percent since February 2009 – nearly all of Obama’s time in office so far.

On Tuesday, policymakers at the Federal Reserve were to start a two-day meeting where Fed Chairman Ben Bernanke has said they would be looking for signs of any stall in the recovery of the labor market.

No major policy announcement is expected although some economists think the Fed this week could push further into the future its conditional pledge to keep rates near zero through late 2014.

Inflation pressures appear to be muted.

A price index for personal spending rose 0.1 percent in June. In the 12 months through June, the PCE index was up 1.5 percent, matching May’s reading which was the lowest since January 2011 and below the Fed’s target of 2 percent.

So-called core PCE, which removes volatile food and energy prices, rose 1.8 percent in the 12 months through June.

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