Consumers increased their spending in June at the fastest pace in four months even though their income growth slowed.
The Associated Press reported that consumer spending rose 0.5% in June compared with May, when spending was up 0.2%, the Commerce Department reported Friday. It was the best gain since a 0.7% rise in February.
Income growth slowed to a 0.3% rise in June, weaker than May’s 0.4% gain.
The hope is that strong consumer spending will help boost a lackluster economy to faster growth in the second half of this year. But for that to happen, economists say income growth needs to accelerate.
Spending on non-durable goods was up 1.3%, reflecting in part rising gas prices, while demand for durable goods rose 0.8%, reflecting strength in auto sales.
The combination of faster spending and slower income growth pushed the savings rate down slightly in June to 4.4% of after-tax income. It had been at 4.6% of after-tax income in May. The savings rate stood at 5.6% for all of 2012, indicating that consumers are trimming their savings to finance spending in the face of weak income growth.
A gauge of inflation tied to consumer spending showed that prices excluding volatile food and energy rose 1.2 percent over the past year, the lowest gain since a 1.1% rise in March 2011.
The Federal Reserve has a target of 2% for inflation. The fact that inflation is falling below that target has prompted some Fed officials to be concerned about a potential bout of deflation. That would be harmful to economic growth because consumers could stop spending in the belief that prices will fall more.
Consumer spending is closely watched because it drives roughly 70 percent of economic activity.