Consumer Spending Adds to the List of Bad Economic Data

For the first time in nearly two years, consumer spending declined in June, according to a Commerce Department report issued Tuesday. While incomes rose slightly, consumer spending fell off 0.2%, the first drop since September 2009, after climbing 0.1% in May.

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The decline was unexpected — economists had predicted an increase of 0.2% in consumer spending, which accounts for about 70% of all economic activity in the U.S. The poor report suggests that growth may continue to be slow in the third quarter. Adjusting for inflation, growth was flat in June despite easing gas prices coming off $4 highs in May. Consumer spending for the entire second quarter only grew 0.1% after spending increased 2.1% in the first quarter.

Overall, the economy only grew 1.3% in the second quarter, with little growth in employment or income. Income rose 0.1%, its slowest rate of growth since November, and disposable income also rose 0.1%, its slowest rate since November as well. Inflation-adjusted disposable income rose 0.3%. Despite the slight uptick in disposable income, spending decreased as more and more would-be consumers chose to save instead of spend. Savings rose from $581.7 billion in May to $620.6 billion in June, a 6.7% increase.