Consumers Boost Spending 1% as Inflation Remains High

Shoppers at the Westfield San Francisco Centre shopping mall in San Francisco. (David Paul Morris/Bloomberg)

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WASHINGTON — American consumers increased their spending by 1% in June — a dose of energy for an economy that is quickly rebounding from the pandemic recession but is facing new risks led by the delta variant of the coronavirus.

At the same time, a key inflation barometer that is closely followed by the Federal Reserve surged 3.5% last month from a year earlier. That was the fastest such 12-month surge since 1991.

June’s solid increase in consumer spending provided further evidence that consumers are driving a strengthening recovery from the pandemic recession.

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The July 30 report from the Commerce Department also showed that personal incomes, which provide the fuel for spending, edged up 0.1% in June after two months of big declines, reflecting the waning of several government support programs.

In its report on consumer spending in June, the government said that goods purchases rose a modest 0.5%, while spending on services increased a stronger 1.2%. As vaccinations have increased and the economy has increasingly reopened, more Americans have been shifting their spending from the physical goods that many purchased while hunkered down at home to spending on services, from haircuts to airline tickets to restaurant meals.

As a whole, household spending has been powering a robust economic recovery from the pandemic recession. On July 29, the government estimated that the economy grew at a solid 6.5% annual rate last quarter — and consumer spending drove much of the gain: It advanced at a powerful 11.8% annual rate in the April-June quarter as more Americans left home to shop, travel and eat out.

The rise in spending has fueled businesses’ need for workers, and in many cases they can’t find enough people to fill jobs. Still, last month, America’s employers added a robust 850,000 jobs, and average hourly pay rose a solid 3.6% compared with a year earlier, faster than the pre-pandemic annual pace.

Yet the economy’s prospects are now clouded by the possibility of a resurgent coronavirus in the form of the highly contagious delta variant. The U.S. is now averaging about 67,000 confirmed new cases a day, up from only about 12,000 a month ago. Should a surge in viral infections cause many consumers to retreat back to their homes and pull back on spending, it would weaken the recovery.

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