March 5, 2021

Spending Fell and Income Barely Rose in June

WASHINGTON — Americans cut back on spending in June for the first time in nearly two years, and their incomes grew by the smallest amount in nine months, troubling signs in a barely growing economy.

The Commerce Department said in a report released on Tuesday that consumer spending dropped 0.2 percent in June. Some of the decline was caused by declining food and energy prices, which had spiked in recent months. When excluding those items, consumer spending was flat.

Income rose 0.1 percent, the weakest showing since September, reflecting anemic hiring this spring, while the personal savings rate rose to 5.4 percent of after-tax incomes, the highest level since August 2010.

The data highlighted that consumer spending weakened during the April-June quarter, which could mean the sluggish economy is worsening. Consumer spending is closely watched because it accounts for 70 percent of domestic economic activity.

“The recent run of weak economic news has made us more concerned that any rebound will be more modest than previously looked likely,” said Paul Dales, senior United States economist at Capital Economics.

High gas prices and unemployment have squeezed household budgets this spring, leading to tepid overall economic growth in the April-June quarter. The economy expanded at an annual rate of 1.3 percent in the second quarter after only 0.4 percent growth in the first three months of the year. The combined growth for the first six months was the worst since the recession ended two years ago.

Many Americans are cutting back on purchases of cars, furniture, appliances and electronics. Employers have responded by reducing hiring. The economy added just 18,000 net jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest level this year.

The government is to issue its employment report for July on Friday.

The biggest drop in spending occurred in items like food and gasoline. Spending on such non-durable goods fell 5.5 percent, reflecting price declines after increases early this year. An inflation gauge tied to consumer spending dropped 0.2 percent in June, the biggest one-month decline since September 2009. Outside of food and energy, prices were up 0.1 percent.

Still, spending on durable goods, such as autos, also fell in June 1.1 percent. One reason for the decline may be the shortage of popular car models in showrooms. Supply chain disruptions caused by the March earthquake in Japan have limited production of auto and electronic parts.

Declining growth and rising unemployment have raised concerns that the country could fall back into a recession.

Many analysts were still hopeful that growth will rebound in the second half of the year, but the timing of any turnaround is hard to gauge. Manufacturers had their weakest growth in two years in July, according to the Institute for Supply Management.

And gasoline prices remain high, even after coming down from a peak of nearly $4 a gallon in early May. The average price for a gallon of regular unleaded was $3.70 on Tuesday — 14 cents higher than a month ago and almost a dollar more than in the same month last year.

Some economists have begun to trim their forecasts for the second half of the year. Capital Economics said it had cut its outlook for second-half growth to 2 percent from a previous forecast of 2.5 percent.

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