Friday August 2, 9:11 am Eastern Time Reuters Business Report Consumer Spending Up on Big Income Gain
WASHINGTON (Reuters) - U.S. consumer spending rose solidly in June as income advanced at the fastest pace in nearly two years on the back of big pay gains, helping cash registers ring out the second quarter on an upbeat note, the government said on Friday. ADVERTISEMENT Consumer spending rose 0.5 percent in June after holding steady in May, the Commerce Department said. Spending in May had originally been reported as down 0.1 percent. Personal income in June increased 0.6 percent, its biggest advance since a matching rise in July 2000. The June income gain followed a 0.4 percent May rise, a tick stronger than originally reported. The report was just a hair off Wall Street expectations. Behind the strong rise in income was a 0.6 percent increase in wages and salaries -- the largest income component. It was the strongest pay performance since an identical increase in January 2001. Disposable income, the amount left after taxes, gained a solid 0.7 percent. That helped the saving rate rise to 4.2 percent from May's 4.1 percent, despite the increase in spending. Economists have said solid income gains should help support spending, even in the face of the brutal stock market decline. Still, the report offered little new information on the economy as the data had already been incorporated in the second-quarter economic growth report released on Wednesday. U.S. gross domestic product advanced at a meager 1.1 percent annual rate in the April-June period, with consumer spending up at a 1.9 percent pace. In addition, investors were glued on Friday to the July employment report from the Labor Department, which showed a paltry gain of 6,000 jobs outside the farm sector -- fueling further fears of renewed economic weakness. Friday's income and spending report showed the rise in spending in June was concentrated on durable goods -- items intended to last three years or more. Durable goods spending rose 1.6 percent, after a 2.6 percent drop in May. Spending on nondurable goods was up 0.4 percent, while outlays on services rose 0.3 percent. The report showed inflation well contained with the price index for personal spending up a mild 0.1 percent, both overall and when volatile food and energy prices are excluded. Economists say continued tame inflation provides scope for the Federal Reserve to hold interest rates steady for a prolonged period, or even cut them further if needed, to ensure the economic recovery does not stall.
