The Bureau of Economic Analysis said that consumer spending was essentially flat in June for the second month in a row. This suggests that Americans have pulled back on their purchases in light of recent weaknesses and uncertainties in the marketplace.
Levels of both durable and nondurable goods purchases declined in June, down 0.1 percent and 0.6 percent, respectively. This was the fourth consecutive monthly decrease for durable goods, and the third for nondurables. Even with these recent declines year-to-date spending on goods is up 1.1 percent, a reflection of stronger gains in January and February.
What is interesting about the current stall in consumer spending is that personal income levels are rising, up 0.5 percent in June. This was the seventh consecutive monthly gain in incomes, which have increased 2.9 percent year-to-date. In manufacturing, wage and salary disbursements rose from $718.6 billion in May to $724.3 billion in June. They were $702.5 billion in December, suggesting a 3.1 percent increase year-to-date for the sector.
With income growth outpacing spending, the savings rate has risen from 3.4 percent in December to 4 percent in May to 4.4 percent in June.
Inflationary pressures have continued to ease as energy costs have fallen. Prices for consumer items are increasing at a 1.5 percent annual rate. This had been 2.4 percent as recently as February. When you exclude food and energy costs the “core” inflation rate is 1.8 percent, which is below the Federal Reserve’s stated 2 percent target. This is welcome news to both consumers and businesses.
Chad Moutray is chief economist, National Association of Manufacturers.