US consumer spending continues to rise in June; likely to contribute strongly to growth in Q3

US personal income was up 0.2 percent in June, a tad lower than consensus projection of 0.3 percent. Meanwhile, real disposable personal income rose 0.1 percent in June. On the other hand, personal spending rose strongly by 0.4 percent in nominal terms. This was more than consensus expectations of 0.3 percent. Real spending rose 0.3 percent in June, quickening from May’s 0.2 percent.

The economic growth of US is clearly being led by consumers, contradicting the softness registered elsewhere in the economy, said TD Economics in a research report. The solid handoff via the tail end of the second quarter bodes well for sustained solid contribution from household spending to economic growth in the third quarter of this year, added TD Economics.

Real spending throughout major categories was robust, with spending on durable goods rising 0.4 percent and on non-durables and services rising 0.3 percent each. Meanwhile, the personal saving rate fell to 5.3 percent from May’s 5.5 percent. The personal saving rate is continuing to trend lower from its recent peak recorded in March (6.2 percent). Inflation, on year-on-year basis, continued to stay at 0.9 percent, while core inflation, excluding food and energy, also remained the same at 1.6 percent.

The drop in savings rate might be taken as a positive development, according to TD Economics. The present savings rate is now closer to its longer-run trend than the elevated level registered early in 2016. The move downward is still in line with consumer finally spending the windfall from energy prices.

The business side of the economy is the weak spot. Profits have been hampered, while investment has bared the brunt. Given that the consumer demand continues to be solid, businesses are expected to get confidence to boost capacity, lifting the investment outlook for the rest of 2016, stated TD Economics.