US consumer spending inched up in June, somewhat boosted by tax rebates that were part of an economic stimulus package.

But when adjusted for inflation, spending actually fell 0.2 per cent in June as the prices of consumer goods and services saw their largest one-month jump in more than 27 years.
Specifically, the price index for personal consumption expenditures increased 0.8 per cent, marking the largest month-to-month gain since September 2005, when a 1.0 per cent rise was reported. Also, June’s PCE price index increase was the second-largest on-month gain since February 1981, the Commerce Department said. The PCE price index had climbed 0.5 per cent in May.
Economists said the personal income report was pretty negative, suggesting that the rebates, alone, weren’t capable of resuscitating the ailing economy.
“The rebates are not translating into anywhere near the spending impulse that Congress and the administration had hoped for,” Global Insight US economist Brian Bethune said in a research note. “Under these circumstances, the economy remains in very fragile condition indeed.”
Personal consumption increased by 0.6 per cent in June compared with the month before. May spending went up 0.8 per cent.
Personal income increased at a seasonally adjusted rate of 0.1 per cent compared to the month before. That was the smallest gain since the rate was reported unchanged in April 2007. Income rose 1.8 per cent during May, revised from a previously estimated 1.9 per cent increase.
Dow Jones Newswires had projected a 0.3 per cent dip in personal income during June and a 0.5 per cent climb in consumer spending.
Consumer spending makes up about 70 per cent of US gross domestic product, reflecting a big part of the economy. While spending inched up by 0.6 per cent, climbing prices elevated spending. In fact, when adjusted for inflation, spending in June fell 0.2 per cent.
“On balance, this was a negative report showing a slowdown in spending and acceleration in inflation,” Lehman Brothers economist Michelle Meyer said in a research note. “We expect consumption will continue to weaken, especially as the rebate effect fades.”
Compared with a year earlier, the PCE price index climbed 4.1 per cent in June. It hasn't seen that large of an annualized jump since May 1991.
The PCE price index excluding food and energy, known as the core PCE, rose 0.3 per cent in June, after rising 0.2 per cent in May. Year over year, it climbed 2.3 per cent in June, after increasing 2.2 per cent in May.
The Federal Reserve watches the year-over-year core PCE price index closely for signs of problematic inflation.
The latest GDP figures show that the economy grew modestly in the second quarter due to healthy exports and rebate cheques provided by the economic stimulus package. Those payments, which began going out in late April, likely were a driver of the unadjusted 0.6 per cent increase in June consumer spending.
The stimulus payments were reflected in the income data as personal current transfer receipts, which fell $US21.4 billion in June, compared with an increase of $US187.5 billion during May.
The income report showed private wage and salary disbursements increased $US11.1 billion in June, compared with an increase of $US17.7 billion in May.
June disposable personal income - income after taxes - fell by 1.9 per cent, after rising 5.7 per cent in May. The 1.9 per cent dip was the largest decrease since August 2005.
The Commerce Department reported personal saving as a percentage of disposable personal income was 2.5 per cent in June.
(Source: The Australian)