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“This means the economy has a little more momentum in the third quarter than we feared,” said Paul Ashworth, chief US economist at Capital Economics.
The personal consumption expenditure price index rose 0.5% in June, like the month before, while the core PCE price index – the Federal Reserve’s preferred measure of inflation, which excludes volatile components like energy and food prices – slowed to 0.4%, its second consecutive slowdown.
This drop in the core price index appears to support the Fed’s firmly held view that pandemic-era inflation spikes will be temporary and will go away on their own. Investors have had doubts whether this will be true, but Friday’s data should ease market fears of runaway inflation, Action Economics economists said in a note to clients.
Looking at longer-term inflation data, prices rose 4% over the 12 months ended June, as they did in May. Excluding energy and food, prices rose 3.5% over the same period, up slightly from the month before reflecting faster price increases in the second quarter.
Higher income
Americans won higher wages in June, which translated into a 0.1% increase in overall incomes. Disposable income remained stable in June. This is notable because revenues fell in April and May.
Wages in the catering and accommodation sectors are “rising like crazy”,
wrote Indeed, economist Nick Bunker on
Twitter (TWTR).
Companies have increased their pay to attract workers in the current unusual labor market, which is characterized by both high unemployment and a shortage of personnel. Income had been supported by stimulus checks earlier in the spring.
And Americans put their higher incomes to work: Consumer spending rose 1% in June, after declining in May. Consumers spent some $ 29 billion more on goods and some $ 126 billion more on services, including restaurants and accommodations.
“As spending on services increases further in the coming months, it will fuel rapid job gains and further increases in personal income and purchasing power,” PNC Senior Economist Bill Adams said.
Spending also fell for cars and auto parts in June. The auto pandemic market has been characterized by strong demand for used cars, pushing up prices across the country as new car production is held back by a shortage of computer chips.
Meanwhile, the savings rate fell to 9.4% from 10.3% in March, showing people are spending more than they are saving. It was also the first time since the start of the pandemic that the rate had fallen below 10%.
In principle, this is a good thing for the economic recovery, but it could mean that consumers will have less money to put to work in the second half of the year.
As the economic data for July begins to arrive, Americans remain optimistic enough to keep spending.
“Improving consumer finances have dramatically reduced consumer resistance to price increases,” said Richard Curtin, chief economist of the University of Michigan consumer survey.
Meanwhile, the University of Michigan consumer confidence survey was better than expected this month, although it edged down from June.
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