By MARY PATRICK
Consumer spending increased in June at a clip that was faster than any month since February, according to numbers from the U.S. Department of Commerce.
Income also increased by about 0.3%, slightly lower than the 0.4% increase reported in May.
According to an article from the Los Angeles Times, the hope is that increased consumer spending will help spur growth in what has been a “lackluster economy.” However, in order for that to happen, income growth also needs to continue to accelerate, according to the Times article.
Economists watch consumer spending closely. The amount people decide to spend on purchases is a good gauge for the economy, as consumer spending drives about 70% of economic activity in the United States.
“Consumers continue to spend but they’re effectively treading water,” said Omair Sharif, U.S. economist at RBS Securities in Connecticut, told Bloomberg. “There’s not a lot of momentum but they’re holding their own for the most part.”
While economic growth has slowed for three straight quarters, consumer spending has held up better than expected, according to the Times report. Spending grew by 2.3% in the first quarter that ended in March, and by 1.8% in the spring.
Economists forecast that the economy will rebound to a growth rate of about 2.5% in the second half of 2013 – partially because the effects of the federal tax increases from the beginning of the year and a slow down in government spending will have less of an impact on the overall economy.
According to Bloomberg, rising home values, gains in the stock market and an increase in the number of jobs on the market have helped cushion the blow of the payroll tax increase that began in January.
Still, the economy could face headwinds from reduced federal spending and a slow down in the European economy, according to the Bloomberg report.
An increase in gas prices was reflected in spending on non-durable goods – up 1.3% in June, according to the Commerce Department. Demand for durable goods also increased by 0.8% in June, which reflected a continued strength in auto sales, according to the L.A. Times.
The Commerce Department also reported that the savings rate dropped to 4.4% of after-tax income, a rate which had been at 4.6% in May. In 2012, the savings rate stayed around 5.6% – the lower number indicates that people are spending more rather than saving.
The report also found that inflation had increased only 1.2%, the lowest increase since a 1.1% increase in March 2011.
