The numbers: American consumers didn’t spend as much in June as they did in the prior three months, but it’s not because they don’t have the money. Incomes rose solidly for the fifth month in a row and an already strong savings rate edged even higher.
Consumer spending rose 0.3% last month, the government said Tuesday, matching the forecast of economists polled by MarketWatch. Outlays had surged from March through May.
Households generate almost 70% of U.S. economy activity, making their spending habits critical to watch.
The PCE inflation gauge that’s closely watched by the Federal Reserve, meanwhile, rose a scant 0.1% in the month, leaving the increase over the past year unchanged at 1.4%.
That’s well below the Fed’s 2% target. The Fed is widely expected to cut U.S. interest rates on Wednesday as an insurance policy against an economic dip. The central bank would also like to nudge inflation higher.
By and large, their spending habits have been supported by growing incomes. Personal income rose by 0.4% for the fourth month in a row and revised figures show the gains in the first quarter were even stronger than originally reported.
The savings rate edged up to 8.1% from 8%, keeping them near a three-year high.
Another measure of inflation that strips out food and energy, known as core PCE, rose by 0.2% in June. It’s up 1.6% in the past 12 months.
Revisions in the PCE report over the past year also show that inflation was somewhat weaker than previously reported.
Big picture: The June report on spending pretty much tells us what we already knew. Americans are still spending at a healthy pace that’s strong enough to extend an already record-long economic expansion. And inflation is low — indeed, too low in the Fed’s view.
The central bank is worried about ongoing U.S. trade wars and their depressing effect on the global economy — an effect that could come home to roost if the disputes aren’t resolved fairly soon.
Market reaction: The Dow Jones Industrial Average
and S&P 500
were set to open lower in Tuesday trades. Stocks have been trading at or near record highs for the past few weeks.
The 10-year Treasury yield
slipped to 2.05%.