US consumer spending rises, incomes fall

WASHINGTON (AFP) - US consumer spending rose in June, but incomes plunged as a result of the end of certain stimulus payments, the government said Tuesday in a report highlighting challenges facing recovery from recession. The Commerce Department reported personal spending rose for the second consecutive month, by 0.4pc, slightly better than the average analyst forecast of 0.3pc. In May, personal spending rose a revised 0.1pc, weaker than the 0.3pc initially estimated.
In adjusted dollars, spending actually fell slightly, by 0.1 percent, in June, weighed down by inflation, particularly higher gasoline prices, analysts noted. Spending in real dollars was unchanged in May and fell 0.2 percent in April and March.
The latest report clouded the outlook for a recovery any time soon in consumer spending, which accounts for two-thirds of US output and is key to pulling the economy out of the 20-month-old recession.
The wallets are still being held quite tightly, said Joel Naroff of Naroff Economic Advisors said. Households are spending a little and saving a lot as they wait and see where the economy will go, he said.
Personal incomes slipped 1.3 percent June, wiping out the revised 1.3 percent gain in May, the Commerce Dept reported.
This volatility reflected the timing of payments from the governments 787-billion-dollar economic stimulus, which boosted personal current transfer receipts in May much more than in June, the Commerce Dept said. On a nominal basis, it was the steepest drop in incomes since January 2005, and much sharper than the 1.0pc decline expected.
Excluding the stimulus provisions, the decrease in incomes was 0.1 percent.
President Barack Obamas stimulus includes personal tax cuts and one-time payments of 250 dollars to eligible recipients of social security and other benefits. In June, the payments boosted incomes by 5.6 billion dollars, compared with 157.6 billion dollars added in May.
The drop in personal income in June wasnt as bad as it appears. Still, this report overall wasnt a great portent for consumer spending, said Briefing.com analysts in a client note. As the effects of the cash stimulus dwindled, consumers increasingly felt the pinch of falling wages and rising prices amid the worst recession since the Great Depression. Private wages and salaries fell to 28.6 billion dollars in June, following a decrease of 11.3 billion in May.
Disposable personal income (DPI) income less personal taxes fell 1.3 percent in June after rising 1.6 percent in May.
No green shoots at all in these data ... Wages and salaries are less volatile than headline income and they are dropping steadily every month, negative 0.4 percent in June, said Ian Shepherdson of High Frequency Economics.
The rate of personal savings disposable income less personal outlays fell to 4.6 percent from 6.2 percent in May as Americans were pressed to stretch their shrinking incomes.
Real personal consumption expenditures (PCE) fell 0.1 percent, compared with an increase of less than 0.1 percent in May.
Meanwhile, the PCE price index surged 0.5 percent in June after a 0.1 percent increase in the prior month.
Excluding food and energy prices, the core inflation rate on consumer spending rose 0.2 percent, up from a 0.1 percent gain in May. On a 12-month basis, core prices rose 1.5 percent, well within the Federal Reserves inflation comfort zone. The weak personal spending and incomes report comes ahead of Fridays July jobs data, expected to show the unemployment rate notched up to 9.6pc from 9.5pc in June, a 26-year high.
Reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers. Consumers remain a missing link in hopes for strong recovery, said Nigel Gault, chief US economist at IHS Global Insight.