Consumer spending rebounds, construction activity falls in June

WASHINGTON -- In more signs that the economy has yet to slow, consumer spending posted a strong rebound in June after two months of lackluster growth, while manufacturing activity remained steady in July.

The Commerce Department said spending rose by 0.5 percent in June, a slightly better-than-expected gain following smaller increases of just 0.2 percent in April and 0.3 percent in May.

Meanwhile, the National Association of Purchasing Managers said that its production index remained at 51.8 percent in July, ending a four-month decline in a key gauge of future factory activity. A reading above 50 percent in viewed as indicating manufacturing will grow in coming months.

The rebound in consumer spending outstripped American workers' gain in incomes, which were up 0.4 percent in June. That was in line with analysts' expectations and was a slight improvement from a 0.3 percent income advance in May.

In another report, the Commerce Department said that construction spending fell 1.7 percent in June to a seasonally adjusted annual rate of $800 billion. It marked the third consecutive monthly decline after decreases of 0.2 percent in May and 1.7 percent in April.

It was the longest stretch of weakness since a similar three-month drop from April to June last year and reflected weakness reflected declines in all areas of building.

Residential construction was down 1.4 percent; construction of non-residential buildings was off 1.1 percent, despite a slight rise in office construction, and government construction fell a sharp 4.4 percent, led by a big 9.7 percent fall in school construction.

The June rebound in consumer spending, which accounts for two-thirds of total economic activity, was a further sign that the economic slowdown many economists have been expecting has yet to materialize.

Last Friday, the government reported that the overall economy, as measured by the gross domestic product, was growing at an annual rate of 5.2 percent in the second quarter, even better than the 4.8 percent growth posted in the first three months of this year.

That report has raised new concerns that the Federal Reserve will likely feel the need to boost interest rates further when Fed policy-makers next meet on Aug. 22.

The central bank has already increased short-term borrowing costs six times over the past 13 months in an effort to slow economic growth and keep inflation in check.

Many economists believed the Fed's efforts were succeeding until a string of recent reports showed the economy rebounded in June and July.

The 0.4 percent increase in incomes in June was the best showing since incomes had risen by 0.6 percent in April.

Disposable income, which is what Americans have to spend after paying taxes, rose 0.3 percent in June, matching the May increase, but below a 0.5 percent rise in April.

With spending rising faster than income growth, Americans' personal savings rate slipped to 0.1 percent in June, its lowest level since a similar 0.1 percent savings rate in March.

The savings rate had actually dipped into negative territory in February at minus 0.1 percent, reflecting the fact that consumer spending during the first three months of this year was growing at the fastest pace in more than a decade.