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In the News: Retail spending rises in June

In the News: Retail spending rises in June

Retail Spending Rises in June
Reprinted from Reuters.com.

U.S. 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 on Tuesday 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.

“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 consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4 percent last month. Data for May was revised up to show consumer spending advancing 0.5 percent instead of the previously reported 0.2 percent 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 percent annualized rate during that period after a pedestrian 0.5 percent pace in the first quarter.

The economy grew at a 4.1 percent rate in the second quarter, almost double the January-March period’s 2.2 percent 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.

Consumer spending last month was boosted by spending at restaurants and on accommodation. Spending on services accelerated 0.6 percent after rising 0.3 percent in May. Outlays on goods were unchanged after surging 0.9 percent 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 percent in June. It had risen by 0.2 percent in the prior month.

That kept the year-on-year increase in the so-called core PCE price index at 1.9 percent for a third straight month.

The core PCE index is the Fed’s preferred inflation measure. The core PCE hit the U.S. central bank’s 2 percent inflation target in March for the first time since December 2011.

The Fed is expected leave interest rates unchanged on Wednesday after increasing borrowing costs in June for the second time this year. It has forecast two more rate hikes by December.

“For the Fed, there’s nothing to be alarmed about in this morning’s data,” said Chris Low, chief economist at FTN Financial in New York. “Consumers are behaving and inflation is stable.”

The dollar firmed marginally against a basket of currencies. Prices for longer-dated U.S. Treasuries rose and stocks on Wall Street were trading higher. Continue reading...

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