Americans bump up spending in June

NEW YORK CITY: Americans increased their spending last month as inflation eased in many areas, and the job market remained remarkably strong.

Retail sales rose 0.2 percent from May to June, following a revised 0.5-percent increase the previous month, the Commerce Department reported on Tuesday.

The figure matched the pace of consumer inflation in June from the prior month, underscoring that shoppers are just about keeping up with pricing pressures. While the headline number of 0.2 percent was a bit weaker than expected, economists on Tuesday focused on data that excludes volatile autos, gas, building materials and food services, which rose a solid 0.6 percent in June.

The uptick in sales follows an increase in May that pointed to an economy that remains resilient despite rising prices. Yet spending has been volatile this year after surging nearly 3 percent in January. Sales tumbled in February and March before recovering in April and May.

“While they continue to spend, the June retail sales report suggests that consumers are becoming more thoughtful with their purchases,” wrote Oren Klachkin, US economist at Oxford Economics. He pointed to the labor market losing some momentum, declining savings and interest rates that have made borrowing money or using credit cards more expensive.

There is already early evidence of a pushback from consumers that is being reflected in financial reports from some of the country’s biggest food producers.

Consumers, whose spending accounts for about 70 percent of all US economic activity, have been the engine behind the economic recovery from a slowdown during the pandemic. Government relief checks, the suspension of student loan payments and super-low interest rates helped.

Demand outpaced what factories could produce and what ports and freight yards could handle, leading to shortages, delays and skyrocketing prices.

That gave companies “abnormal power to push up prices” and pass higher costs along to consumers — clout they hadn’t had for decades, Simon MacAdam, senior global economist at Capital Economics, wrote last month.

Low interest rates are long gone: The Federal Reserve (Fed) began aggressively hiking rates in March 2022. The student loan moratorium ends later this year.

And the savings that Americans had stashed away at the peak of the pandemic are vanishing. Fed researchers have reported that consumers depleted their excess’ savings in the first three months of 2023.

All of which means that consumers may no longer be willing to tolerate elevated prices as overall inflation dips.

US data on prices, the most recent arriving last week, showed that consumer inflation reached its lowest point since early 2021 last month. Prices rose just 0.2 percent from May to June, thanks to easing costs for gasoline, airline fares, used cars and groceries. Inflation is just up 3 percent over the last 12 months. But Americans still face surging prices for some goods and services as well, like auto insurance.

PepsiCo, which makes Mountain Dew, said last week that higher prices lifted the company’s revenue in the second quarter but consumer demand has faded. The company said that price increases could start to moderate in the second half of this year.