WASHINGTON — As gasoline prices rose, Americans spent more in June than in May — despite falling incomes. For the rest of the year, economists expect falling wages and rising unemployment to act as a drag on spending.
Consumer spending is closely watched because it accounts for about 70 percent of economic activity and has helped lift the economy out of previous recessions. While analysts expect the economy to grow in the second half of this year, consumers aren’t likely to lead the way.
Americans boosted their spending 0.4 percent in June, the Commerce Department said Tuesday, the second consecutive monthly increase. But adjusting for inflation, spending fell 0.1 percent, following a flat reading in May. Inflation-adjusted spending hasn’t increased since February, the department said.
Personal income, meanwhile, dropped 1.3 percent in June, the eighth straight decline and steepest fall in four years. Incomes were inflated in May due to one-time payments from the Obama administration’s stimulus program. But wages and salaries also fell 0.4 percent in June.
"The key message is that … income remains weak” and consumers are likely to keep saving more, Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients. "Under those circumstances, we expect spending to remain muted for some time.”
Gasoline prices peaked June 22 after rising nearly every day for two months. A price index included in the income and spending report showed overall prices rose 0.5 percent in June, but were up only 0.2 percent when food and energy are excluded.
by the associated press
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