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Americans kept spending in June to end better second quarter

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(Bloomberg) — American households kept spending in June, capping a stronger quarterly performance for the biggest part of the economy.

The 0.2 percent increase in purchases followed a 0.7 percent May advance, Commerce Department figures showed Monday in Washington. The June gain matched the median forecast of economists in a Bloomberg survey. Incomes climbed 0.4 percent for a third month.

Americans, enjoying a hiring pickup and no longer fettered by high prices at the gas pump, helped the economy stir last quarter after an early-year slumber. A tempering of spending at the end of the quarter shows stronger wage growth is probably needed to convince more consumers to open their wallets with greater frequency and allow the economy to build momentum.

“Wage growth is still a bit of an issue — you’re really not seeing a whole lot of acceleration,” said Gennadiy Goldberg, a U.S. strategist at TD Securities LLC in New York, who correctly projected the rise in consumer purchases. While the June figures show “a little bit weaker hand-off into the third quarter,” he said, “overall, we’re chugging along pretty decently here.”

The June gain helped spending increase in the second quarter at a 2.9 percent annualized rate, up from a 1.8 percent pace in the first three months of the year and stronger than the 2 percent average from 2010 through 2014.

Projections for June consumer spending in the Bloomberg survey of 62 economists ranged from no change to a 0.4 percent increase. The previous month’s reading was initially reported as a 0.9 percent advance.

The Bloomberg survey median called for incomes to rise 0.3 percent. May’s income reading was revised down from a previously reported 0.5 percent gain.

Disposable Income

Disposable income, or the money remaining after taxes, rose 0.2 percent in June from the prior month after adjusting for inflation. The saving rate climbed to 4.8 percent from 4.6 percent in May.

The data showed that after adjusting for inflation, in order to generate the figures used to calculate gross domestic product, purchases were little changed in June after a 0.4 percent gain in May.

Sustained momentum in consumer purchases will be needed to keep U.S. growth chugging along. The economy grew at a 2.3 percent pace in the second quarter as household spending advanced more than projected, Commerce Department data showed last week.

Spending on durable goods, including automobiles, fell 1.1 percent in June after adjusting for inflation, following a 1.3 percent jump in May, according to Monday’s report.

Auto Sales

The auto industry has remained a bright spot for consumer spending and factory activity. June sales of cars and light trucks totaled 17.1 million at an annual rate, capping the strongest quarter since 2005, after a 17.7 million pace a month earlier, based on data from Ward’s Automotive Group.

Purchases of non-durable goods, which include gasoline, were little changed, while outlays on services advanced 0.2 percent.

The report also showed the price index tied to consumer spending increased 0.2 percent in June from the prior month. It rose 0.3 percent from June 2014. This inflation gauge is preferred by Federal Reserve policy makers and it hasn’t reached their 2 percent goal since April 2012.

Stripping out the volatile food and energy categories, the price measure climbed 0.1 percent from May and rose 1.3 percent in the 12 months ended in June.

“Inflation is anticipated to remain near its recent low level in the near term,” the Fed officials repeated in a July 29 statement at the conclusion of their two-day meeting in Washington. The central bankers said they see inflation rising “gradually” toward their goal “as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate.”

Wage Growth

While lower fuel costs are one reason consumers are spending, gains in worker pay have been lackluster. Wages climbed in the second quarter at the slowest pace on record. The 0.2 percent advance was the smallest in data going back to 1982 and followed a 0.7 percent increase in the first quarter, the Labor Department said Thursday.

“Despite some improvement in consumer confidence and the jobless rate over the past several years, the middle class has been largely left out of the economic recovery,” Campbell Soup Co. Chief Executive Officer Denise Morrison said on a July 22 conference call. “Volatility and uncertainty persist, and consumer spending remains cautious.”

–With assistance from Kristy Scheuble and Shobhana Chandra in Washington.