The numbers: Americans increased spending on a variety of goods and services in June as more people returned to work and massive infusions of government aid flowed through the economy, but progress appears to have slowed lately after a recent surge in coronavirus cases.
Personal spending rose 5.6% in June, the government said Friday, after a revised advance of 8.5% in May.
Income fell 1.1%, slightly more than expected, due to reduced federal aid to families.
The government sent stimulus checks to most families in May as part of an unprecedented effort by Washington to keep people working or provide them with more generous unemployment benefits during the worst health crisis in a century. More aid was distributed in June, but not as much.
Read:The economy suffers a titanic drop of 32.9% in the second quarter, which points to a prolonged recovery
Meanwhile, a closely watched inflation measure coincided with the biggest increase in three years, largely due to higher gasoline prices. The PCE index, the Federal Reserve’s preferred inflation barometer, rose 0.4%.
However, the annual inflation rate was quite low, less than 1%.
What happened: Consumers spent more on new cars and trucks, clothing, gasoline, and recreation as the economy reopened heavily. Americans also spent more on health care when they returned to hospitals for non-coronavirus-related treatments.
Still, spending is well below pre-crisis levels, with so many Americans out of work and others concerned about their financial security.
Read:Unemployment claims rise for second consecutive week as U.S. economic activity slows
The extremely high level of savings fell to 19% from 24% in May. Households have been maintaining record levels in case the economy or their own situations worsen.
Inflation, meanwhile, poses little threat to the economy at this time.
Although the cost of some basic products such as gas and food has increased, most companies have had to reduce the prices of goods and services to generate sales after a collapse in demand at the beginning of the pandemic.
Read:Consumer confidence falls in July and points to a more difficult economic recovery
The inflation rate in the last 12 months increased to 0.8% from 0.5%, according to the PCE index. However, it is well below the 1.9% pace in January.
A separate measure of inflation that strips food and energy, known as the base rate, rose 0.2% in June. However, it has risen only 0.9% in the past year and is at the lowest level since the Great Recession a decade earlier.
See: MarketWatch Economic Calendar
Big picture: The reopening of the economy fueled a rebound in May and early June when millions of Americans returned to work. Another large outbreak of coronavirus cases undermined the recovery of momentum and a variety of measures show that economic growth has slowed in July.
What will likely determine whether growth picks up again is whether Washington extends emergency unemployment benefits and other measures. They expire this week. Without more help, economists say, the recovery is likely to lose more force.
Read:‘A massive welfare economy’: Federal aid prevents even more pronounced GDP collapse
What are they saying? “The pullback in spending provides a good starting point for the third quarter,” said senior economist Sal Guatieri of BMO Capital Markets. Still “High-frequency indicators suggest that consumption slowed in July due to the partial reversal of reopens in several states. “
“With the expiration of numerous assistance programs and a poorly managed health crisis that limits spending on services, the second phase of the recovery will likely be much slower,” said United States Chief Economist Gregory Daco of Oxford Economics.
Market reaction: The Dow Jones Industrial Average DJIA,
and S&P 500 SPX,
They were meant to increase slightly on Friday’s exchanges.
.
