U.S. consumer spending increases solidly in June

WASHINGTON (Reuters) – U.S. consumer spending increased solidly in June as households spent more on restaurants and accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately.

FILE PHOTO: Shoppers ride escalators at the Beverly Center mall in Los Angeles, California, U.S., November 8, 2013. REUTERS/David McNew/File Photo

The Commerce Department said on Tuesday consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4 percent last month. Data for May was revised up to show consumer spending advancing 0.5 percent instead of the previously reported 0.2 percent increase.

Last month’s increase in consumer spending was in line with economists’ expectations. The data was included in last Friday’s second-quarter gross domestic product report, which showed consumer spending accelerating at a 4.0 percent annualized rate during that period after a pedestrian 0.5 percent pace in the first quarter.

The economy grew at a 4.1 percent rate in the second quarter, almost double the January-March period’s 2.2 percent pace and the strongest performance in nearly four years. June’s increase in consumer spending sets it on a higher growth path heading into the third quarter.

Consumer spending last month was boosted by spending at restaurants and on accommodation. Spending on goods was unchanged after surging 0.9 percent in May.

Spending on services accelerated 0.6 percent after rising 0.3 percent in the prior month.

Prices continued to steadily rise last month. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components gained 0.1 percent. It had risen by 0.2 percent in May.

That kept the year-on-year increase in the so-called core PCE price index at 1.9 percent for a third straight month. The core PCE index is the Federal Reserve’s preferred inflation measure. The core PCE hit the U.S. central bank’s 2 percent inflation target in March for the first time since December 2011.

Fed officials were due to start a two-day meeting later on Tuesday. They are expected leave interest rates unchanged after increasing borrowing costs in June for the second time this year. The Fed has forecast two more rate hikes by December.

The moderate inflation helped to support consumer spending last month. When adjusted for inflation, consumer spending rose 0.3 percent in June after a similar gain in May.

In June, personal income rose 0.4 percent, matching May’s increase. Wages gained 0.4 percent. The saving rate was unchanged at 6.8 percent last month.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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