Higher prices sap consumers
June spending falls as gas prices push inflation gauge up
WASHINGTON – Consumer spending, after adjusting for inflation, fell in June as shoppers were hit with the second biggest increase in prices in nearly three decades.
The Commerce Department reported Monday that consumer spending dipped by 0.2 percent in June, after removing the effects of higher prices, the poorest showing since a similar drop in February.
The higher prices reflected a big surge in gasoline costs and helped to drive an inflation gauge tied to consumer spending up by 0.8 percent in June, a monthly increase that has been exceeded only once since 1981. This price gauge jumped by 1 percent in September 2005 after Hurricane Katrina shut down oil production along the Gulf Coast.
The big rise in inflation ate up a part of the billions of dollars in stimulus payments delivered during the month. Personal incomes rose by a tiny 0.1 percent in June following a giant 1.8 percent increase in May.
In other economic news, the Commerce Department reported that orders to U.S. factories shot up at the fastest pace in six months in June, reflecting big increases in petroleum prices and heavy demand for military equipment.
The 1.7 percent rise in June, the best showing since a 1.9 percent increase in December, was more than double the gain that economists had expected. It was led by a 5.2 percent surge in orders for primary metals such as steel. Orders for defense capital goods soared by 16.9 percent, the second consecutive double-digit gain, reflecting heavy demand for military hardware to fight the wars in Iraq and Afghanistan.
Income gains were skewed by how the department accounts for the billions of dollars in stimulus payments that have been made over the past three months. Those payments totaled $1.9 billion in April, when the program was just getting started, then $48.1 billion in May and $27.9 billion in June.
Those payouts made incomes and after-tax incomes soar in May compared to April but weaken in June since the level of June payments was lower than they had been in May.
Consumer spending before removing inflation rose by 0.6 percent in June after a big 0.8 percent increase in May. Much of that spending went to pay higher prices for gasoline and other items, however. Removing inflation, spending edged up by a more modest 0.3 percent in May and fell by 0.2 percent in June.
The overall economy, as measured by the gross domestic product, grew at a 1.9 percent rate in the April-June quarter, more than double the 0.9 percent increase in the January-March quarter.