Consumer Spending Posts Second Straight Gain in June

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Consumer Spending Posts Second Straight Gain in June

WASHINGTON -- Consumers opened their wallets and pocketbooks a bit more in June, increasing spending for the second straight month while saving less—even as incomes fell sharply, according to a report by The Associated Press.

Many economists, though, warned that despite the slight increase in June, falling wages and rising unemployment likely will keep spending sluggish for the rest of this year.

Still, the housing market continued to show signs of life as pending U.S. home sales rose in June for the fifth straight month, according to the National Association of Realtors. The group's pending home sales index rose more than expected to 94.6, from an upwardly revised reading of 91.3 in May. The last time there were five straight monthly gains was July 2003, the AP reported.

Meanwhile, the Commerce Department said Tuesday consumers boosted spending 0.4 percent in June, slightly ahead of analysts' estimates. That comes after spending rose 0.1 percent in May. Personal income fell 1.3 percent, the steepest drop in more than four years. Incomes rose by the same amount in May, boosted by one-time payments from the government.

Economists expected personal incomes—the fuel for future spending—to fall 1 percent.

Incomes benefited in May from a one-time payment of $250 that was mailed to 50 million Americans receiving Social Security and other government benefits, as part of the Obama administration's $787 billion stimulus package, the report noted.

Excluding the impact of the stimulus, personal income would have fallen 0.1 percent in June after a flat reading in May, the Commerce Department said.

Wages and salaries fell 0.4 percent in June from May, the eighth straight monthly drop, which makes it unlikely consumers will ratchet up their spending anytime soon, economists told the AP.

"The U.S. consumer will not be much of a help during the early stages of the economic recovery," Joshua Shapiro, chief U.S. economist at consulting firm MFR Inc., wrote in a note to clients.

Spending may increase in July and August due to the government's "cash for clunkers" program, which has spurred thousands of Americans to trade in old cars for newer vehicles, Shapiro said. But the savings rate is likely to keep rising later this year.

The government reported last week that the overall economy, as measured by the GDP, shrank at an annual rate of 1 percent in the second quarter, far less severe than the 6.4-percent decline in the first quarter and a 5.4-percent decline in the fourth quarter 2008.

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