NEW YORK (Reuters) - Consumer spending unexpectedly fell in June to post the first decline in nearly two years as incomes barely rose, a government report showed, suggesting economic growth could remain subdued in the third quarter.
“So what’s going on in April and May was gasoline prices were higher but they got less stuff. In June, they had a relief in gasoline prices, people spent less money but they got the same amount of stuff. It’s the first step in turning the corner for the economy so it could grow faster. It will take a few months for people to get back on their feet. The robust in the second-half recovery that people were talking about a couple of months ago is not real realistic.”
”It’s a weak report. It came below our expectations. The growth potential for the economy has slowed significantly. It’s not all about the Japanese supply disruption and it’s not all about the spike in inflation in the first half.
”The PCE deflator is also weaker than expected. This could give some comfort to the Fed policy-makers when they meet next week. For the Fed, the options are limited to stimulate the economy, as risk to a double-dip recession has increased, which we have raised to 33 percent from 25 percent since last week’s GDP number. We think they need to change the language in their next FOMC statement to reflect the data we have been getting.
“We see the GDP growing 2.5 percent in the third quarter with risk to the downside.”
ERIC GREEN, CHIEF ECONOMIST AND HEAD OF INTEREST RATE STRATEGY, TD SECURITIES, NEW YORK
“Consumers turned certainly more cautious as we got deeper into the quarter, evidenced by a higher savings rate and lower consumer spending. In real terms disposable income was stronger than expected given the lower inflation on the month, so that’s good.”
“As far as momentum in the economy, real spending was flat, which is the best it’s been in about two months. So that tells me, at least at the margin, you have a more positive handoff into the third quarter. When the quarter ends on a high note it gives a nice tailwind to Q3 growth.”
VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS
“There had been talk of consumption picking up in the second half of the year as the proportion of commodity price gains eating into discretionary spending faded, but June’s decline of 0.2% in personal expenditures does not help the argument. In real terms, spending was flat after having been down 0.1% in May. The amount spent on both goods and services fell, while the rate of change was basically unchanged.”