US consumer spending took a much deeper dive than expected in June as shoppers cut back on purchases of expensive items like autos amid slowing income growth, a government report showed today.
Personal spending dropped 0.7 per cent in June after climbing one per cent in May, the US Commerce Department said. Adjusted for inflation, spending plunged 0.9 per cent.
Incomes rose a tepid 0.2 per cent, a slowdown from May's 0.6 per cent gain.
Wall Street economists had forecast a 0.1 per cent drop in spending with income up 0.2 per cent. Many are confident the soft spot for spending has already been left behind.
Prices for US government bonds moved higher and the dollar slipped a bit after the report, which was seen as bolstering the case for the Federal Reserve to move cautiously as it raises interest rates from historic lows.
"The second quarter was a kind of disappointment and a lot of that has to do higher energy prices. That zapped some of the demand from the economy," said Mr George Mokrzan, chief economist at Huntington Financial Group in Columbus, Ohio.
Coupled with inflation and taxes, June's meager income gain left consumers no better off than they had been a month earlier. The department said disposable income rose 0.2 per cent, but was unchanged when inflation was taken into account.
Wages, which had risen 0.6 per cent in May, were unchanged in June, the weakest reading since December.
In figures released on Friday that incorporated today's data, the department had said consumer spending advanced at a one per cent annual rate in the second quarter, the slowest pace since the 2001 recession.
Economists said the spending slowdown, which put the brakes on overall economic growth, largely reflected weak auto sales.
The report on personal spending showed spending on expensive, long-lasting manufactured goods - like autos - plunged 5.8 per cent in June, after a 3.7 per cent increase a month earlier.