US consumer spending exits second quarter with strong momentum

Reuters: US consumer spending rose more than expected in June as households bought a range of goods and services, suggesting consumption will likely remain strong after surging in the second quarter.

Despite healthy consumer spending, Tuesday’s report from the Commerce Department showed inflation still muted. This could see a cautious Federal Reserve keeping interest rates at current low levels for a while.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.4% in June after a similar gain in May. Economists polled by Reuters had forecast consumer spending advancing 0.3%.

When adjusted for inflation, consumer spending rose 0.3% after climbing 0.2% in May.

The dollar trimmed losses against the euro and yen after the data. Prices for US government debt also pared losses, while US stock futures were trading lower.

The June data was included in last week’s second-quarter gross domestic product report, which showed that consumer spending rose at a 4.2% annual rate, the fastest in nearly two years. That jump accounted for almost all of the economy’s 1.2% growth pace during the period.

While the second quarter’s robust pace of consumer spending will probably not be sustained, economists are optimistic that spending will remain solid, underpinned by steadily increasing wages as the labour market tightens, as well as rising house and stock market prices.

There was little sign of inflation in June. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.1% in June after a 0.2% gain in May.

In the 12 months through June the core PCE increased 1.6%. It has risen by the same margin since March. The core PCE is the Federal Reserve’s preferred inflation measure and is running below the US central bank’s 2% target.