US consumer spending advanced a robust 0.8 percent in June as shoppers took to auto showrooms to enjoy sales incentives that helped keep inflation steady, a government report showed on Tuesday.
Income in June rose 0.5 percent, the Commerce Department said, a touch stronger than the 0.4 percent gain analysts on Wall Street had expected. The increase in spending, which was already reflected in a report on second-quarter economic growth released on Friday, was as expected.
An inflation index contained in the spending and income report showed prices steady, both overall and excluding volatile food and energy costs. Economists had expected the non-food and energy gauge to edge up 0.1 percent.
Prices for US government bonds trimmed earlier losses on the flat core inflation reading, which traders saw as suggesting the Federal Reserve could continue on its "measured" course of interest rate rises without much fear of inflation.
Over the past year, the core price index - eyed closely by Fed policy-makers - is up 1.9 percent, at the high end of the central bank's perceived comfort zone. However, a narrower measure that looks only at prices that can be observed in markets, showed a more moderate rise of 1.6 percent.
In a separate report, the Commerce Department said factory orders rose 1.0 percent in June as strong demand for computers and electronics outstripped transportation weakness.
The June gain matched Wall Street expectations and followed an upwardly revised 3.6 percent rise in May, first reported as a 2.9 percent advance.
Orders for durable goods, big-ticket items meant to last three years or more, were revised up to show a 2.0 percent gain in June. Computers and electronics orders jumped 10.8 percent and machinery gained 4.0 percent.
Excluding the volatile transportation category, which declined 0.8 percent in June, new orders rose a slightly higher 1.3 percent. Non-defence orders rose just 0.5 percent.
Non-defence capital goods orders excluding aircraft, a key gauge of business confidence, rose 3.9 percent in the largest advance since January. Factory inventories were unchanged in June. The inventories-to-shipments ratio, a measure of how quickly stocks would run out at the current shipment pace, was also unchanged, at 1.23 months' worth.
MANUFACTURING UPTURN? Analysts said the data suggested US factories were well poised for an upturn in the third quarter.
"The manufacturing sector has worked through its inventory overhang and it's receiving a good stream of orders," said Lynn Reaser, chief economist at Banc of America Capital Management.
"On balance, the economy is not overheating. The core rate of inflation is flat in June," Reaser said.
Fed officials are set to meet next Tuesday and are widely expected to raise overnight interest a quarter-percentage point to 3.5 percent, which would mark the tenth consecutive quarter-point increase. Financial markets expect the Fed to push rates up to 4 percent by year end.
The burst in consumer spending in June represented a rebound from May, when inflation-adjusted spending dropped 0.1 percent.
"The June gains in personal spending and income point to a pretty firm close to the second quarter, which puts the economy in a good position at the start of the third quarter. The underlying trend of growth is fairly solid," said Pierre Ellis, senior economist at Decision Economics in New York.
Inflation-adjusted spending in June on durable goods, items meant to last at least three years, shot up 3.3 percent as automakers put in place sales incentives that drew in shoppers. Spending on nondurable items rose 0.9 percent.
Taking into account the bite from taxes, consumer income was still up 0.5 percent. The report showed wages up a slight 0.2 percent.
June's strong spending pushed the saving rate, the percent of disposable income socked away by consumers, down to zero - the lowest since October 2001, just after the September 11 attacks.
Two separate reports on US retail sales showed buoyant consumer spending in the end of July.
The International Council of Shopping Centers and UBS said US chain store retail sales rose 0.9 percent in the week ended July 30. Sales were up 4.9 percent from a year ago.
Another report, by independent company Redbook Research, showed sales at major retailers rose 4.6 percent on a year-over-year basis for the week ended July 30, a better-than expected-reading.
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