Consumer Spending Rises 0.8% in June

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The New York Sun

After taking a rest in June, the nation’s consumers were full of energy last month, boosting their spending by 0.8%, a hopeful sign the economy may be emerging from a summer funk.


The over-the-month increase in consumer spending, reported by the Commerce Department yesterday, marked a turnaround from the 0.2% decline registered in June, when high energy prices and a sluggish job market made for more cautious buyers.


The 0.8% rise, the largest since May, was slightly better than the 0.7% increase some economists were expecting.


“Consumer spending rebounded on the strength of rebate-induced auto sales,” said the chief economist at PNC Financial Services Group, Stuart Hoffman.


Americans’ incomes, the fuel for future growth, however, nudged up by 0.1% in July, down from a 0.2% rise in the previous month. July’s income growth fell short of some analysts’ calls for a 0.5% gain. The 0.1% rise matched an increase for November 2002 and was the smallest advance since income growth was flat in August 2002.


The spending and income figures are not adjusted for price changes.


Income growth was held back by a decline in government payments – mainly a reduction in the federal matching rate for Medicaid reimbursements, which had been boosted by last year’s tax cuts. Wages and salaries rose by 0.4% in July, an improvement after being unchanged in June.


Yesterday’s report showed that consumer spending on durable goods, such as cars, rose by 4.1%, compared with a 3.2% drop in June. Spending on non-durables, such as food, increased by 0.2% for the second straight month. Spending on services rose by 0.4% in July, up from a 0.3% gain.


Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Thus, consumers play a key role in shaping economic activity.


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