U.S. consumer spending up 0.3% in June

Consumer spending rose a healthy 0.3% in June, slightly below the strong gains of the past three months, while incomes turned in a solid 0.4% gain for the fourth straight month.

The Commerce Department said Tuesday that the spending increase followed strong gains of 1% in March, 0.6% in April and 0.5% in May as the consumer rebounded following a lacklustre start to the year.

An inflation gauge favoured by the Federal Reserve showed prices rising 1.4% over the past year, well below the Fed’s 2% inflation target. Fed officials are widely expected to reduce their benchmark interest rate for the first time in a decade at this week’s meeting, in part because of the continued short-fall in inflation despite strong economic growth and unemployment at near a 50-year low.

The overall economy slowed to a growth rate of 2.1% in the April-June quarter from 3.1% in the first quarter as the trade deficit, which is a drag on growth, widened and businesses cut back on capital investment. The slowdown would have much more severe if consumers had not rebounded following a sharp slowdown in the first quarter.

Consumer spending grew at an annual rate of 4.3% in the second quarter after a disappointingly weak 1.1% gain in the first quarter. Economists are optimistic that consumer spending, which accounts for 70% of economic activity, will keep showing solid gains in the second half of this year.

The saving rate rose to 8.1% of after-tax incomes in June, reflecting annual revisions by the government which sharply boosted the previous figures.

The slower spending gain reflected a modest 0.4% rise in spending on durable goods such as autos after a sizzling 1.5% gain in May.

Increase in home prices cooled in May

Meanwhile, U.S. home prices rose at a slower pace in May, a sign that many would-be buyers are finding properties unaffordable.

The S&P CoreLogic Case-Shiller 20-city home price index increased 2.4% in May from a year earlier. That marked a slight deceleration from the 2.5% year-over-year gain in April.

The sluggish price growth stems largely from the most expensive markets, where years of price growth have undermined affordability. Home prices rose less than 2% in Los Angeles, New York, San Diego and San Francisco. Prices in the typically hot market of Seattle fell 1.2% from a year ago, a sharp reversal from an annualized gain of 13.6% in May 2018.

There are signs in the National Association of Realtors report on existing home sales that lower mortgage rates might lift prices.

Josh Boak, The Associated Press

Josh Boak is a reporter with The Associated Press,  an American not-for-profit news agency headquartered in New York City and founded in 1846.