Consumers Spent More in June as Prices Rose

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Nam Y. Huh/APConsumer spending rose in June, helped by an increase in auto sales.
WASHINGTON -- U.S. consumer spending increased and inflation pushed higher in June, which could strengthen expectations that the Federal Reserve will curtail its bond purchases later this year.

The Commerce Department said Friday consumer spending rose 0.5 percent, lifted by automobile purchases and higher gasoline prices. May's increase was revised down to 0.2 percent from a previously reported 0.3 percent.

June's increase in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was in line with economist expectations.

A price index for consumer spending rose 0.4 percent, the largest gain since February. It had edged up 0.1 percent in May. During the past 12 months, inflation rose 1.3 percent, still below the Fed's 2 percent target.

The index advanced 1.1 percent in the period through May.

With prices picking up, consumer spending adjusted for inflation nudged up 0.1 percent. The so-called consumer spending, which goes into the calculation of gross domestic product, had increased by the same margin in May.

The consumer spending numbers were included in the second-quarter GDP report Wednesday, which showed the economy grew at a 1.7 percent annual pace after expanding at a 1.1 percent rate in the first three months of the year.
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Spending has been held back by an increase in taxes at the start of the year, but is expected to accelerate in the second half of the year, supported by a steady jobs market and a recovery in housing.

The economy added 162,000 jobs in July, compared to 188,000 in the previous month, the Labor Department said Friday. Analysts polled by Reuters had forecast jobs growth of 184,000 for July.

The rise in inflation in June should provide some comfort to Fed officials who Wednesday nodded to the potential dangers of inflation running too low, and bring them close to reducing the central bank's $85 billion a month in bond purchases.

Still, inflation remains benign. The price index for consumer spending, excluding food and energy, rose 0.2 percent in June. It was the largest increase since January and followed a 0.1 percent gain in May.

Core prices were up 1.2 percent from a year ago, rising by the same margin for a third consecutive month.

A firming labor market is helping to prop up income, which in June gained 0.3 percent after rising 0.4 percent in May.

But government salaries fell, reflecting furloughs at agencies as part of Washington's belt-tightening.

With spending outpacing income growth, the saving rate -- the percentage of disposable income households are socking away -- fell to 4.4 percent from 4.6 percent.

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Consumers Spent More in June as Prices Rose
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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