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WASHINGTON (AP) — Americans cut back on their spending in June for
the first time in nearly two years and their incomes grew by the
smallest amount in nine months, a troubling sign for an economy
that is barely growing.
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Consumer spending dropped 0.2 percent in June, the Commerce
Department said Tuesday. Some of the decline was caused by
declining food and energy prices, which had spiked in recent
months. When excluding spending on those items, consumer spending
was flat.
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Incomes rose 0.1 percent, the weakest growth since September. Many
people are responding by saving more. The personal savings rate
rose to 5.4 percent of after-tax incomes, the highest level since
August 2010.
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The data confirmed last week’s report that showed the economy
expanded at a tepid annual rate of 1.3 percent in the spring after
only 0.4 percent growth in the first three months of the year. But
it also highlighted that consumer spending weakened during the
April-June quarter, which could mean the sluggish economy is
worsening.
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Stock futures were trading lower after the report was
released.
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“The recent run of weak economic news has made us more concerned
that any rebound will be more modest than previously looked
likely,” said Paul Dales, senior U.S. economist at Capital
Economics, .
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High gas prices and unemployment have squeezed household budgets
this spring. Many Americans are cutting back on purchases of cars,
furniture, appliances and electronics. Consumer spending is closely
watched because it accounts for 70 percent of economic
activity.
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Employers have responded by reducing hiring. The economy added just
18,000 net jobs in June, the fewest in nine months. The
unemployment rate rose to 9.2 percent, the highest level this
year.
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The government issues its July employment report on
Friday.
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The biggest drop in spending occurred in such items as food and
gasoline. Spending on such non-durable goods fell 5.5 percent,
reflecting price declines after spikes early this year. An
inflation gauge tied to consumer spending dropped 0.2 percent in
June, the biggest one-month decline since September 2009. Outside
of food and energy, prices were up 0.1 percent.
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Still, spending on durable goods, such as autos, also fell in June
1.1 percent. One reason for the decline may be the shortage of
popular car models in showrooms. Supply chain disruptions caused by
the March earthquake in Japan have limited production of auto and
electronic parts.
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Many analysts are still hopeful that growth will rebound in the
second half of the year. They expect auto production and sales to
pick up once supply chain disruptions ease.
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But the turnaround may not come for a while. Manufacturers had
their weakest growth in two years in July, according to the
Institute for Supply Management.
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The private trade group of purchasing executives said that its
index of manufacturing activity fell to 50.9 percent in July from
55.3 percent in June. The reading was the lowest since July 2009 –
one month after the recession officially ended.
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And gas prices remain high, even after coming down from their peak
of nearly $4 a gallon in early May. The average price for a gallon
was $3.70 on Tuesday – 14 cents higher than a month ago and almost
a dollar more than the same month last year.
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Some economists have begun to trim their forecasts for the second
half of the year. Dales and his colleagues at Capital Economics
have cut their outlook for second half growth to 2 percent, down
from a previous forecast of 2.5 percent growth in the second half
of this year.
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