Personal income rose 0.2 percent in June vs 0.3 percent increase expected

A man purchases something during the Governors Ball Music Festival in New York.
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U.S. consumer spending rose more than expected in June as households bought a range of goods and services, suggesting consumption will likely remain strong after surging in the second quarter.

The Commerce Department said on Tuesday consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent in June after a similar gain in May. Economists polled by Reuters had forecast consumer spending advancing 0.3 percent.

When adjusted for inflation, consumer spending increased 0.3 percent after climbing 0.2 percent in May.

The data was included in last week's second-quarter gross domestic product report, which showed that consumer spending rose at a 4.2 percent annual rate, the fastest in nearly two years. That jump accounted for almost all of the economy's 1.2 percent growth pace during the period.

While the second-quarter's robust pace of consumer spending will probably not be sustained, economists are optimistic that spending will remain solid, underpinned by steadily increasing wages as the labor market tightens, as well as rising house and stock market prices.

Despite the gains in consumer spending, there was little sign of inflation. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.1 percent in June after a 0.2 percent gain in May.

In the 12 months through June the core PCE increased 1.6 percent. It has risen by the same margin since March. The core PCE is the Federal Reserve's preferred inflation measure and is running below the U.S. central bank's 2 percent target.

Consumer spending was lifted by a 0.7 percent rise in purchases of non-durable goods. Spending on services increased 0.5 percent, but outlays on long-lasting manufactured goods such as automobiles fell 0.3 percent.

Spending increased in June despite personal income rising only 0.2 percent after a similar gain in May. Wages and salaries advanced 0.3 percent after rising 0.2 percent in May. With spending outpacing income, savings fell to $732 billion, the lowest level since March 2015.

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