'Consumer spending sees biggest drop since 2001'

[Chiwas]

It was already commented but yesterday the FT's published it with some details.


Financial Times

Consumer spending sees biggest drop since 2001
By Andrew Balls in Washington
Published: August 3 2004 14:22 | Last updated: August 3 2004 16:31

US consumer spending dropped 0.7 per cent in June, the biggest fall since September 2001, according to official figures published on Tuesday. The Commerce Department released the monthly data underlying its advance estimate of second-quarter gross domestic product.

Government statisticians estimate that the US economy grew at 3 per cent in the second quarter, slower than expected, owing to a 1 per cent rate of growth in consumer spending. Consumer spending was dragged down by the June decline. However, the Commerce Department said most of the decrease in consumer spending in June was the result of a decline in the sale of vehicles and car parts, a volatile factor in recent months.

The Federal Reserve has said weaker consumer spending in June was partly explained by higher energy prices, and that the slowdown should prove short-lived. Data from July suggest economic activity rebounded last month.

Personal incomes rose 0.2 per cent in June, down from a 0.6 per cent increase in May, the weakest growth for more than a year.However, the data showed there was also a rise in household saving in June, from 1.2 per cent to 2 per cent, the highest level in almost a year. “This tells us that that ‘soft patch' may be more than just an energy story, but also a decision to rebuild savings,” said Ian Morris, economist at HSBC, in a note to clients.

Real disposable incomes, taking into account taxes and inflation, were unchanged in the month. The personal consumption expenditure index rose 0.2 per cent in June, and by 2.5 per cent in the 12 months to June.

The core PCE index, the Fed's preferred measure of inflation which excludes food and energy costs rose 0.1 per cent. Core inflation rose by 1.5 per cent in the 12 months to June, broadly in line with the previous three months, indicating that inflation pressures have stabilised after the jump at the start of the year.

The Fed has explained the rise in core inflation at the start of the year as the result of temporary factors.