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Consumer spending growth cools despite solid rise in personal incomes

Maria Cantellano, left, gives change to a customer while working at her stand at the Atlanta Farmers Market in Atlanta on June 5.

Maria Cantellano, left, gives change to a customer while working at her stand at the Atlanta Farmers Market in Atlanta on June 5.

(David Goldman / AP)
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Growth in spending by consumers significantly cooled in June despite another solid gain in incomes, the Commerce Department said Monday.

Personal consumption expenditures increased 0.2%, the smallest in four months, compared to a downwardly revised 0.7% jump in May.

The decline came as Americans spent less on cars and other long-lasting durable goods.

Personal income rose 0.4% for the third straight month. But instead of spending the extra money, as they did in May, consumers saved much of it.

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The portion of disposable income saved rose to 4.8% in June compared to 4.6% the previous month.

Economists had expected spending to decline. The increase in personal income was better than the 0.3% increase analysts had forecast.

The annual inflation rate remained extremely low. The price index for personal consumption expenditures rose 0.3% for the 12 months ended June 30.

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The Federal Reserve wants prices to rise 2% annually, so the low rate is a concern as central bank policymakers consider when to raise their benchmark short-term interest rate.

Still, inflation is moving in the right direction for the Fed, if very slowly.

June’s increase was up from the 0.2% rate for the 12 months ended May 31. And June was the second straight month that the inflation rate ticked up 0.1 of a percentage point.

Low oil prices have kept inflation down.

Excluding volatile energy and food prices, so-called core inflation increased 1.3% for the 12 months ended June 30. That annual rate has been the same since January.

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Fed policymakers are watching spending and income figures closely as they try to decide when to raise the short-term federal funds rate.

On Friday, the Labor Department reported that the broad look at worker pay, the employment cost index, rose just 0.2% in the second quarter. That was down from a 0.7% increase in the first quarter and the smallest rise since the government began collecting the data in 1982.

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