July 31 (Bloomberg) -- Consumer spending in the U.S. stagnated in June as labor-market weakness prompted Americans to use the biggest gain in incomes in three months to build savings.
Household purchases, which make up 70 percent of the economy, were unchanged last month after a 0.1 percent decline in May, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg News survey of economists called for a 0.1 percent rise. Incomes climbed 0.5 percent, lifting the saving rate to 4.4 percent, the highest in a year.
Americans may be growing less pessimistic about job prospects later in the year, with another report today showing consumer confidence rose unexpectedly for the first time in five months. Federal Reserve policy makers meeting today and tomorrow may wait for more employment data before deciding whether action is needed to boost an economy that’s slowed for two straight quarters.
“There’s been some back-tracking in the labor market so consumers are choosing to save the income rather than spend it,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who correctly projected the stagnation in purchases. “The third quarter will be pretty subdued.”
The Standard & Poor’s 500 Index fell 0.4 percent to 1,379.32 at the close of trading in New York. The yield on the 10-year Treasury note dropped to 1.47 percent from 1.50 percent late yesterday as Europe’s debt crisis underpinned demand for the safest securities.
Unemployment in Europe
The jobless rate in the euro area reached the highest on records dating to 1995 as the debt crisis and deepening economic slump prompted companies to cut jobs. Unemployment in the economy of the 17 nations using the euro reached a revised 11.2 percent in May and held at that level in June, the European Union’s statistics office in Luxembourg said today.
The crisis is also taking a toll in Asia. Taiwan’s economy unexpectedly shrank, South Korean output fell and a Japanese manufacturing gauge reached the lowest level since immediately after the 2011 earthquake, according to reports today.
Other data in the U.S. showed that a gauge of business activity unexpectedly rose in July, and home prices declined less than forecast in the year ended in May.
Projections for personal spending among the 76 economists surveyed by Bloomberg ranged from a drop of 0.1 percent to a gain of 0.4 percent. The May reading was previously reported as unchanged.
The June results indicate the consumer was losing steam as the quarter drew to a close. Household spending rose 1.5 percent from April through June, the slowest pace in a year, according to government data last week. Gross domestic product also climbed at a 1.5 percent annual rate, cooling from a 2 percent pace in the prior three months.
Retail sales fell in June for a third straight month, the longest period of declines since 2008. Same-store purchases rose less than analysts’ estimates at chains like Target Corp. and Macy’s Inc.
Coach Inc., the largest U.S. luxury handbag maker, today reported fiscal fourth-quarter revenue that trailed analysts’ estimates. Sales at North American stores open at least a year advanced 1.7 percent, compared with a gain of 10 percent a year earlier.
Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases dropped 0.1 percent, the most since August, after a 0.1 percent increase in the previous month, today’s report showed.
The Conference Board’s index of consumer confidence increased to 65.9 this month from 62.7 in June. Economists projected a reading of 61.5, according to the median estimate in a Bloomberg News survey.
The report showed a gain in the share of consumers anticipating better labor and economic conditions in six months. A pickup in the housing market and decreases in fuel prices may also be helping sustain consumer sentiment.
“Despite this month’s improvement in confidence, the overall index remains at historically low levels,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement.
The confidence figures contrast other data on consumer sentiment. The Bloomberg Consumer Comfort Index fell in the week ended July 22 to minus 38.5, the lowest level in two months. The Thomson Reuters/University of Michigan final July index of consumer sentiment was the weakest this year.
The Conference Board’s measure of present conditions decreased to 46.2 from 46.6 in June. The measure of expectations for the next six months increased to 79.1 from 73.4 in June.
The percent of respondents expecting more jobs to become available in the next six months rose to 17.6 from 14.8 the previous month. The share of consumers who said jobs are currently plentiful fell to 7.8 percent from 8.3 percent. Those who said jobs weren’t plentiful rose to 51.4 percent from 50.5 percent.
Another report showed housing prices are stabilizing. The S&P/Case-Shiller index of property values decreased 0.7 percent in May from a year earlier, data from the group showed in New York.
A business barometer from the Institute for Supply Management-Chicago Inc. increased to 53.7, the highest since April. Readings greater than 50 signal growth.
Fed Chairman Ben S. Bernanke will probably forgo announcing a third round of large-scale asset purchases this week, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt, according to the median estimate of economists in a Bloomberg News survey.
Eighty-eight percent of economists say the Federal Open Market Committee will refrain from starting new purchases at a two-day meeting beginning today in Washington. Forty-eight percent say the FOMC will announce the buying at its Sept. 12-13 meeting, according to the July 25-27 survey of 58 economists.
Progress in reducing the jobless rate probably will be “frustratingly slow,” Bernanke told lawmakers in testimony this month. He also said the central bank is “prepared to take further action as appropriate to promote a stronger economic recovery.”
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