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News > Economy
Consumer spending up
July 31, 2001: 10:23 a.m. ET

Personal income also rose in June despite economic slowdown
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NEW YORK (CNNfn) - Consumers spent more in the United States in June though their confidence in the state of the economy finally began to slip, according to separate reports Tuesday about the most important aspect of the world's largest economy.

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The Commerce Department said consumer spending -- which fuels about two-thirds of the nation's economy -- rose 0.4 percent in June after a 0.3-percent gain in May. Analysts surveyed by Briefing.com had forecast a 0.3 percent rise for June. Meanwhile, U.S. income rose 0.3 percent in June after rising 0.2 percent in May. Analysts polled by Briefing.com expected a 0.2 percent gain.

"These numbers are in line with an economy we see as sluggish but still growing," said Robert Goodman, chief economist with Putnam Investments. "Consumers are still willing to spend, even if they do have to dip into savings."

Consumer confidence slipped in July, as the Conference Board's index of consumer sentiment fell to 116.5 from a revised 118.9 in June. But the Board, an economic research firm that surveys 5,000 U.S. homes monthly, didn't expect consumer sentiment to fall further.

"Despite sluggish economic conditions and almost non-stop layoff announcements, consumers are cautiously optimistic that the economy will rebound later this year," said Lynn Franco, director of the Conference Board's Consumer Research Center.

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graphicCNNfn's Chris Huntington takes a look at the spending and income report, as well as other data.
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Separately, a reading on manufacturing in the Midwest came in at 38 for July, according to the Chicago Purchasing Management Association, well below Wall Street forecasts and June's reading -- pointing to more weakness in the industrial sector, which has borne the brunt of the slowdown.

U.S. stock markets were solidly higher at midmorning while Treasury bonds were mixed.

In June, personal savings as a percentage of disposable income hit a rate of 1.1 percent, the Commerce Department said, compared with a sharply revised rate of 1.2 percent in May. Previously, the government had reported personal savings actually fell 1.1 percent in May.

The June report's gauge of inflationary pressures was relatively tame. The inflation-adjusted index for personal consumption expenditures (PCE), closely watched by the Federal Reserve, rose by only 0.2 percent in June after rising 0.1 percent in May. Excluding food and energy prices, it rose 0.2 percent after falling 0.1 percent in May. Analysts polled by Briefing.com expected PCE to rise by 0.3 percent.

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Despite a sinking stock market and an economic slowdown that's dragged on for a year, bringing hundreds of thousands of job cuts, U.S. consumers have continued to spend, keeping the economy from slipping into a recession.

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The Federal Reserve has cut its target for short-term interest rates six times this year to encourage that spending, and economists think those rate cuts, combined with a modest tax rebate, will carry consumers through the rest of the year.

"The basic message is that consumption is likely to be positive in the third quarter," said Paul Kasriel, chief economist at Northern Trust Co. in Chicago. "We're looking at most likely another quarter of relatively modest consumer spending, but positive nonetheless."

Spending was boosted by a 1.5-percent gain in expenditures for durable goods, items such as refrigerators and autos intended to last three or more years.

Separately, the Chicagoland Business Barometer fell in July to a seasonally adjusted 38.0 from 44.4 in June, the National Association of Purchasing Management-Chicago said Tuesday.

An index below 50 signals a contracting manufacturing economy, while a reading above 50 suggests expansion. The manufacturing sector has suffered the most during the current economic slowdown. graphic


- from staff and wire reports

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