Consumer Spending Sluggish

U.S. consumer spending in June grew at its slowest pace this year while a measure of inflation reached its highest mark in nearly four years, a government report released Tuesday showed.

Meanwhile, a separate report showed factory activity was stronger than expected in July, suggesting businesses were picking up spending as consumer purchases slowed.

The Commerce Department said inflation rose 0.2% in June, while personal income increased 0.6% in the month and nominal spending was up 0.4%. The latter two figures matched Wall Street expectations.

The figures were also broadly in line with recent evidence that economic growth is slowing as a housing-led slowdown in consumer spending takes hold.

But some economists hope business investment can make up the difference and keep the expansion at an even keel.

“The overall message is that manufacturing is proving to be quite resilient in the face of higher interest rates and weakening consumer spending,” said Norbert Ore, chairman of the Institute for Supply Management business survey committee.

Adjusted for inflation, consumer spending rose 0.2% for the third straight month, while after-tax real income moved up 0.4%, the biggest gain since December 2005.

U.S. consumer prices excluding food and energy rose in June a moderate 0.2%, but the year-on-year rate hit a near four-year high of 2.4%, keeping financial markets on edge over a possible Federal Reserve interest rate hike.

Wage and salary income, which had been flat in May, rose 0.6% in June, before accounting for inflation. The rise in income helped consumers rely a little less heavily on their savings, bringing the saving rate -- saving as a percentage of disposable income -- to a negative 1.5% from May’s negative 1.6%.

The U.S. saving rate has been in negative territory for 15 straight months.

News from the industrial sector proved positive, with the institute’s index of national factory activity rising to 54.7 in July from 53.8 in June, beating economists’ forecasts for a slight fall.

A reading over 50 indicates that activity is growing.

The prices-paid component of the index, which measures inflationary pressures within the sector, rose to 78.5 from 76.5, the highest reading in nine months.

New orders, a gauge of future growth, slipped to 56.1 from 57.9, while the employment index rose to 50.7 from 48.7.

Also Tuesday, two real estate reports showed growth in the commercial sector partly offsetting a slowdown in residential sales.

Construction spending rose a stronger-than-expected 0.3% to a record high in June on gains in nonresidential and public building, but private residential construction fell for the third month in a row as the housing market cooled. Construction spending rose to a seasonally adjusted $1.217 trillion annual rate in June from May’s $1.214 trillion.

The National Assn. of Realtors said pending sales of U.S. homes, based on contracts signed in June, rose unexpectedly for the second straight month.