By David Harrison
Americans curbed their spending increases in June, a sign weak
wage growth might be weighing on consumers.
Personal spending, which measures what consumers spend on
everything from doughnuts to dishwashers, rose 0.2% from a month
earlier, the smallest gain since February, the Commerce Department
said Monday. In May, spending rose a revised 0.7%.
Personal income, which includes wages and government aid,
climbed 0.4% in June after rising a revised 0.4% in May. Both June
figures came in as expected by economists surveyed by The Wall
Street Journal.
The Commerce Department said last week that inflation-adjusted
consumer consumption rose at an annualized rate of 2.9% in the
second quarter, contributing to a bounceback in gross domestic
product following a disappointing winter.
But wage growth slowed unexpectedly in the second quarter, which
could have damped Americans' enthusiasm to spend.
Analysts said the low spending numbers could be a sign of
concern.
"These latest figures set up a soft trajectory for consumer
spending heading into the third quarter," Daniel Silver of J.P.
Morgan wrote in a note to clients.
Joshua Shapiro, chief U.S. economist at MFR, pointed to
demographic factors: "We expect spending gains to lag income growth
as an aging population seeks to boost retirement savings and also
struggles with healthcare costs," he wrote.
Businesses have also flagged a reluctance among consumers to
pull out their wallets.
On an earnings call last month, J.J. Buettgen, chief executive
of casual-dining chain Ruby Tuesday Inc., cited "relative weakness"
in some parts of the country partly due to "relatively soft
consumer spending."
"We've seen it in our business," he said.
Meanwhile, consumer prices rose slightly in June, the Commerce
Department said Monday. Prices grew 0.2% from May, as measured by
the personal consumption expenditures price index, the Federal
Reserve's preferred inflation gauge. Prices were up 0.3% from a
year earlier. Inflation has now run below the Fed's 2% target for
more than three years.
Excluding the volatile food and energy categories, core prices
climbed 0.1% from May and 1.3% from a year earlier.
Fed officials are paying especially close attention to the labor
market and to inflation as they consider raising short-term
interest rates from near zero, where they have stayed since 2008.
Fed officials have said they want to be "reasonably confident" that
inflation is moving back toward the 2% level before they move. Many
economists believe the Fed will raise rates in September.
Lower oil prices and a strong dollar have kept inflation in
check in recent months. The trend has been toward slower inflation
growth, with the 12-month inflation increase lower than it was in
May 2014, when it hit 1.8%.
Monday's inflation reading could be cause for concern about a
rate increase in the near term, but the weakness in price increases
appears to have stabilized.
Michael Gapen, chief U.S. economist at Barclays, said Monday's
price data suggest the effect of lower oil prices is moderating,
which could lead to higher inflation readings in the coming
months.
"We read the PCE inflation report as suggesting the data have
cleared another hurdle for a September rate hike," he said.
Fed officials say they think the slowdown will be temporary.
Speaking to lawmakers last month, Fed Chairwoman Janet Yellen said
she expects inflation to pick up "over the medium term" as oil
prices stabilize.
Ms. Yellen also said she expects lower oil prices and a robust
job market to eventually lead to greater consumer spending growth,
a critical component of overall gross domestic product.