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By Jason Simpkins
Consumer spending made a disappointing showing in June, with only a tepid increase from the month before. But consumer confidence shot up in July to its highest level in nearly six years, giving investors some hope that a resurgent consumer can help the U.S. economy to navigate its current morass of housing and credit woes.
The Commerce Department reported yesterday that consumer spending slowed in the month of June, a major disappointment following a strong showing in May. Consumer spending edged up a mere 0.1% in June, a sharp contrast to the 0.6% increase the month before.
But the Conference Board’s closely watched Index of Consumer Confidence suggested that shoppers might have just been keeping their powder dry for summer. The index shot up to 112.6 from a revised 105.3 in May. It is themeasured by the index in nearly six years.
High gas prices and the negative effects of the housing slump left consumers with less disposable income in June, leading to the spending slowdown. There was a 1.6% drop in the purchase of big-ticket items, such as cars and appliances. This was a complete reversal of the numbers posted in May, which saw a 1.6% increase.
Consumer spending on non-durable goods such as food and clothing was flat in June. It was up 1.4% in May. The only category that showed improvement was the service sector, which saw spending climb 0.5% in June, after only a 0.1% increase in May.
Income growth lived up to expectations however, rising 0.4%, just shy of the 0.5% increase that many analysts predicted. The rise in income and drop off in spending resulted in an increased savings rate, as many Americans elected to hold on to their cash. The savings rate rose 0.6% in June.
The jump in consumer confidence, announced yesterday, is an important leading indicator that consumer spending could surge in July, especially significant in the face of a horrific housing slump, spiraling credit concerns, and an erratic stock market. Global competitiveness concerns and resolute advances in the prices of crude oil and pump gasoline are likely also weighing heavily on the minds of consumers. The July Fourth holiday will no doubt help out the next spending report, as will the start of the very busy back-to-school shopping season.