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 increase matched the median forecast of economists surveyed by Bloomberg News. 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.
From CBS:
Core consumer inflation increased 0.1% for the fourth consecutive month in June, pushing the yearly gain in core inflation down to the lowest level in three years, the Commerce Department said Tuesday.
The core personal consumption price index rose 1.9% in the past year, the lowest inflation since early 2004, and just within the Federal Reserve's unofficial comfort zone of 1% to 2% for core inflation. Core inflation excludes volatile food and energy prices. Read the full government report.
Overall inflation also increased 0.1% in June, the lowest monthly inflation since November. Overall inflation is up 2.3% in the past year.
Expect to start hearing more talk about a Fed rate cut because of these inflation numbers. I still don't think that is a possibility right now. The Fed is still focusing on inflation and monitoring all incoming data.
There are two charts that are really important from this report. The first is the total dollar amount of personal consumption expenditures at seasonally adjusted annual rates. The amounts are expressed in 2000 chained dollars. Notice they have pretty much stagnated over the last 5 months.
Here is the month-to-month percentage change in chained 2000 dollar PCEs. Notice how these numbers are also slowing.
Consumer spending grew 1.5% in the last GDP report. If we continue to see these kind of numbers, don't expect an increase in the near future.
