Ahead of the Bell: US consumer spending

US consumer spending expected to show gain in June, helped by auto sales

Associated Press
Consumer spending in May was disappointingly weak
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In this June 5, 2014 photo, Conquisia Tyler, right, gives change to a customer at Sam's Club in Bentonville, Ark. The Commerce Department releases personal income and spending for May on Thursday, June 26, 2014. (AP Photo/Sarah Bentham)

WASHINGTON (AP) -- The Commerce Department reports on how much U.S. consumers spent and earned in June. The report will be released at 8:30 a.m. EDT Friday.

SPENDING UP: The expectation is that consumers boosted their spending 0.4 percent in June, according to a survey of economists by data firm FactSet. Analysts forecast that income grew 0.3 percent in June.

CONSUMER REBOUND: While consumer spending was slow in April and May, the expectation is that the quarter ended on a strong note, reflecting solid auto sales.

Consumer spending is closely watched because it accounts for two-thirds of economic activity.

After a rocky start to the year reflecting severe winter weather, the economy posted a strong rebound in the April-June quarter with the gross domestic product expanding at a seasonally adjusted annual rate of 4 percent. That was a significant turnaround from the first three months of the year when the economy went into reverse, shrinking at a rate of 2.1 percent.

The biggest force contributing to the revival was a rebound in consumer spending, which grew at an annual rate of 2.5 percent in the second quarter, more than double the sluggish 1.2 percent growth rate during the first quarter.

The rebound was supported by a burst of spending fueled by pent-up demand as shoppers picked up their spending after being kept away from the malls and auto dealerships by winter storms. Spending on durable goods jumped at a 14 percent rate in the second quarter, reflecting the strong auto sales.

Spending has also been supported by rising consumer confidence, which has been bolstered by solid job gains. Through June, the economy added more than 200,000 jobs per month for five straight months.

The Federal Reserve recognized the economy's improvement this week in announcing that it was continuing to gradually wind down its monthly bond purchases because a strengthening economy no longer needs as much support.

The Fed approved a sixth $10 billion reduction in the bond purchases, reducing them to $25 billion. Fed Chair Janet Yellen has said the expectation is that the monthly purchases, designed to keep long-term interest rates low, will be brought to an end at the Fed's October meeting.

In its statement, the Fed also noted that inflation has moved closer to its long-run target of 2 percent after remaining below that target over the past two years. But at the same time, the Fed expressed no concern about the recent rise in inflation and said that longer-term expectations on inflation have remained stable.

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