Hit with high energy prices, consumers in June slashed their spending by the largest amount in three years, according to an Associated Press story. It is an indicator watched closely by the RV sector, which is dependent on discretionary consumer spending.
The Commerce Department reported today (Aug. 3) that consumer spending dropped by a sharp 0.7 percent in June from the previous month. The retrenchment came after consumers splurged in May, ratcheting up spending by a strong 1 percent.
That news was accompanied by a hike in crude oil prices, which rose above the $44 per barrel mark.
As spending dropped off, Americans’ incomes rose by 0.2% in June, down from a solid 0.6% increase the month before.
The decline in spending was the first since September 2003 and the largest drop since September 2001. Consumer spending accounts for roughly two-thirds of all economic activity in the United States and plays a key role in shaping an economic recovery.
The decline was led by a cutback in spending on automobiles and other big-ticket durable goods. Spending on durable goods declined by 5.9 percent in June, compared with a 3.7 percent rise in May.
For nondurables such as food and clothes, spending dipped by 0.3 percent in June, following a 1.4 percent increase the previous month. Spending on services rose by 0.2 percent, down from a 0.3 percent increase.
The latest snapshot of consumer spending was weaker than expected by economists, who were forecasting a tiny 0.1 percent dip in spending and a 0.3 percent rise in incomes for June.
Federal Reserve Chairman Alan Greenspan, appearing before Congress last month, acknowledged that the economy had hit a soft spot in June. He said higher energy prices had sapped consumer spending but predicted the softness in spending would be short-lived.
Greenspan expressed confidence that the economy, which grew by a disappointing 3 percent annual rate in the second quarter of this year, would pick up momentum in the coming months. He noted that anecdotal data for July seemed promising.
Tuesday’s report is consistent with a string of other economic data in June – including the employment report, retail sales and industrial production – that suggested the economy took a bit of a breather during that month.
Even so, economists are still expecting the Federal Reserve to boost short-term interest rates when it meets on Aug. 10.