US consumer spending increased solidly in June, as households spent more at restaurants and on accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately.
Other data showed employers boosting benefits for workers in the second quarter, but wage growth slowed down.
With savings at lofty levels and lower taxes increasing take-home pay for some workers, spending is likely to remain strong this year. Accelerating home prices, which are boosting wealth for some households, should also underpin consumption.
Strong economic growth and steadily rising inflation are likely to allow the Federal Reserve to continue gradually raising interest rates. Fed officials started a two-day meeting on Tuesday.
Wants, Not Needs
"More spending on 'wants', not 'needs', is always a good sign of consumer confidence," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "As long as incomes continue to rise and job creation remains strong, consumer spending should remain solid over the remainder of the year."
The Commerce Department said that consumer spending, which accounts for more than two thirds of US economic activity, rose by 0.4% last month. Data for May was revised to show consumer spending advancing by 0.5% instead of the previously reported 0.2% gain.
Last month's increase in consumer spending was in line with economists' expectations. The data was included in last Friday's second-quarter gross domestic product report, which showed consumer spending accelerating at a 4.0% annualised rate during that period, after a pedestrian 0.5% pace in the first quarter.
The economy grew at a 4.1% rate in the second quarter – almost double the January-March period's 2.2% pace and the strongest performance in nearly four years. June's increase in consumer spending sets it on a higher growth path heading into the third quarter.
As aforementioned, consumer spending last month was boosted by spending at restaurants and on accommodation. Spending on services accelerated 0.6%, after rising 0.3% in May. Outlays on goods were unchanged after surging by 0.9% in May.
Prices continued to steadily rise last month. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, gained 0.1% in June. It had risen by 0.2% in the previous month.
That kept the year-on-year increase in the so-called 'core' PCE price index at 1.9% for a third straight month.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
