Wednesday, May 23, 2018
Business

Americans saving instead of spending

WASHINGTON — Consumer spending stagnated in June as labor market weakness prompted Americans to use the biggest gain in incomes in three months to build savings.

Household purchases, which make up 70 percent of the economy, were unchanged in June after a 0.1 percent decline in May, a Commerce Department report showed Tuesday. Incomes climbed 0.5 percent, lifting the saving rate to 4.4 percent, the highest in a year.

"There's been some back-tracking in the labor market, so consumers are choosing to save the income rather than spend it," said Julia Coronado, chief economist for North America at BNP Paribas in New York. "The third quarter will be pretty subdued."

The jobless rate in the euro area reached the highest on records dating to 1995 as the debt crisis and deepening economic slump prompted companies to cut jobs. Unemployment in the economy of the 17 nations using the euro reached a revised 11.2 percent in May and held at that level in June, the European Union's statistics office in Luxembourg said Tuesday.

The crisis is also taking a toll in Asia. Taiwan's economy unexpectedly shrank, South Korean output fell and a Japanese manufacturing gauge reached the lowest level since immediately after the 2011 earthquake, according to reports Tuesday.

Other data in the United States showed that a gauge of business activity unexpectedly rose in July, and home prices declined less than forecast in the year ended in May.

Projections for personal spending among the 76 economists surveyed by Bloomberg ranged from a drop of 0.1 percent to a gain of 0.4 percent. The May reading was previously reported as unchanged.

The June results indicate the consumer was losing steam as the quarter drew to a close. Household spending rose 1.5 percent from April through June, the slowest pace in a year, according to government data last week. Gross domestic product also climbed at a 1.5 percent annual rate, cooling from a 2 percent pace in the prior three months.

Retail sales fell in June for a third straight month, the longest period of declines since 2008. Same-store purchases rose less than analysts' estimates at chains like Target and Macy's.

Fed Chairman Ben Bernanke will probably forgo announcing a third round of large-scale asset purchases this week and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt, according to the median estimate of economists in a Bloomberg News survey.

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