WASHINGTON- US consumer spending surged in June as vaccinations against COVID-19 boosted demand for travel-related services, but part of the increase reflected higher prices, with annual inflation accelerating further above the Federal Reserve’s 2 percent target.
Though personal income barely rose last month, other data showed wage growth in the second quarter was the fastest in 13 years on an annual basis. That, together with rising household wealth and ample savings should keep consumer spending strong, though rising COVID-19 infections pose a risk.
“The overall trend of healthy-to-strong growth will continue into next year,” said Scott Hoyt, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Downside risks remain large. The return of shutdowns from increased infections is unlikely, but cannot be ruled out. There are also upside risks, especially given all the extra saving since the spring of 2020.”
Consumer spending, which accounts for more than two-thirds of US economic activity, rebounded 1.0 percent last month after dipping 0.1 percent in May, the Commerce Department said. Economists polled by Reuters had forecast consumer spending rising 0.7 percent.
Nearly half of the population has been vaccinated against COVID-19, allowing Americans to travel, frequent restaurants, visit casinos and attend sporting events among services-related activities that were curbed early in the pandemic.
Spending on services advanced 1.2 percent last month. The broad increase was led by spending at restaurants and hotels.
While spending on goods remains strong, the pace has slowed amid shortages of motor vehicles and some household appliances, whose production has been hampered by tight supplies of semiconductors across the globe. Demand is also shifting to services from goods. Amazon.com Inc on Thursday said sales growth would slow in the next few quarters as customers venture more outside the home.
Spending on goods rose 0.5 percent. Spending on long-lasting goods decreased 1.5 percent, reflecting a decline in motor vehicle purchases. Outlays on nondurable goods rose 1.8 percent.
The data was included in the second-quarter gross domestic product report published on Thursday. Consumer spending grew at a robust 11.8 percent annualized rate last quarter, accounting for much of the economy’s 6.5 percent growth pace, which lifted the level of GDP above its peak in the fourth quarter of 2019.
