Faltering consumer spending to weigh on growth

Tue Aug 2, 2011 5:00pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - Consumer spending dropped in June for the first time in nearly two years and incomes barely rose, signs the economy lacked momentum as the second quarter drew to a close.

The Commerce Department said on Tuesday consumer spending slipped 0.2 percent, the first decline since September 2009, after edging up 0.1 percent in May. Adjusted for inflation, spending was flat after a 0.1 percent decline.

Incomes rose just 0.1 percent.

"It certainly gets us off on a very soft footing for the third quarter and does call into question a bit the notion of a second-half pick-up," said Julia Coronado, North America chief economist at BNP Paribas in New York. "We are not seeing it yet going into the third quarter."

The data, which was incorporated in a report on U.S. economic growth on Friday that showed the economy expanded at less than a 1 percent annual rate over the first half of the year, was the latest to underscore the recovery's frail state.

A report on Monday showed manufacturing activity hit a two-year low in July, leading some economists to dial back expectations for growth over the second half of the year.

For the third-quarter, many economists have scaled back growth estimates to around 2.5 percent from 3 percent.

"If the recovery is ever going to gain speed, it will have to come from households deciding they want to spend money again," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.   Continued...

 
<p>Shoppers carry their purchases along Broadway in New York City, May 11, 2008. REUTERS/Joshua Lott</p>