Consumer Spending Posts Smallest Gain in Four Months

U.S. consumer spending in June advanced at its slowest pace in four months as demand for automobiles softened, suggesting the economy lost some momentum at the end of the second quarter.

But the moderation in consumer spending could be temporary as some automakers on Monday reported stronger-than-expected U.S. sales in July, which kept the industry on a pace for its best year in a decade.

Other data showed manufacturing continued to struggle last month, with activity weakening slightly. The combination of anemic consumer spending and sluggish manufacturing likely do not change expectations the Federal Reserve will raise interest rates this year, especially with the labor market tightening.

"We're not too worried by this (data) as a further improvement in the labor market should support spending before long. The Fed will probably place more weight on the ... decent news on the labor market. A hike in September remains a good bet," said Paul Dales, a senior U.S. economist at Capital Economics.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2 percent after increasing 0.7 percent in May, the Commerce Department said.

June's increase was in line with economists' expectations and the data was included in last week's second-quarter gross domestic product report, which showed consumer spending expanding at a 2.9 percent annual rate and the overall economy growing at a 2.3 percent pace.

While the consumer spending data suggest less vigor in the economy heading into the third quarter, any slowdown is likely to be mitigated by a strengthening housing sector and tightening labor market, which are boosting household wealth.

Ford Motor Co <F.N> reported a 5 percent jump in sales for July, well above the 2 percent gain expected by analysts, on the strength of its F-Series pickup trucks.

Sales at Fiat Chrysler Automobiles <FCAU.N><FCHA.MI> rose 6 percent and Nissan Motor Co Ltd <7201.T> reported an 8 percent sales gain.

Separately, the Institute for Supply Management (ISM) said its index of national factory activity fell to 52.7 last month from 53.5 in June.

Prices for U.S. government debt rose, while U.S. stocks fell. The dollar was largely unchanged against a basket of currencies.

INFLATION BENIGN

The Fed last week described the economy as expanding "moderately," upgraded its view of the labor market and said housing had shown "additional" improvement.

Its assessment left the door open for a possible rate hike in September, which would be the first increase in nearly a decade.

In June, spending on long-lasting manufactured goods fell 1.3 percent, with purchases of motor vehicles accounting for most of the decrease, which reversed May's increase. Outlays on services like utilities rose 0.4 percent.

When adjusted for inflation, consumer spending was unchanged after increasing 0.4 percent in May.

Personal income rose 0.4 percent in June for a third straight month. With income gains outpacing spending, the saving rate increased to 4.8 percent from 4.6 percent in May.

Inflation pressures remained benign. A price index for consumer spending rose 0.2 percent after gaining 0.3 percent in May. In the 12 months through June, the personal consumption expenditures (PCE) price index rose 0.3 percent.

Excluding food and energy, prices edged up 0.1 percent for the third straight month. The so-called core PCE price index rose 1.3 percent in the 12 months through June. It has increased by the same margin every month since January.

Inflation is running below the Fed's 2 percent target.

(Reporting by Lucia Mutikani; Additional reportig by Bernie Woodall in Detroit; Editing by Paul Simao)