The numbers: Freed from most Covid restrictions Americans spent liberally in June on travel, vacations and other services they shunned during the pandemic.
Consumer spending rose a sturdy 1% last month, the government said Friday.
The increase in spending was no surprise. On Thursday, the government said consumer outlays surged almost 12% in June to underpin a strong economic recovery.
Even though federal stimulus payments have dried up, households have plenty of savings to underwrite an increase in spending. The savings rate slipped to 9.4% in June from 10.3% in the prior month, but it’s still well above pre-pandemic levels.
Millions of Americans have also gone back to work this year and are earning paychecks again.
One big caveat: Some of the increase in consumer is the result of Americans paying higher prices for for cars, food, gas, travel and many other goods and services amid the biggest surge in inflation in 13 years. Spending rose by a smaller 0.5% if inflation is taken into account.
Personal incomes , meanwhile, edged up 0.1% in June. Incomes were held down in part by the end of stimulus payments.
Economists polled by The Wall Street Journal had forecast a 0.6% increase in consumer spending last month. Incomes were expected to decline 0.4%.
Big picture: The U.S. economy has made up a lot of lost ground in 2021. Gross domestic product soared 6.5% in the second quarter, leaving the economy larger than it was before the pandemic.
Consumer spending, the main driver of the U.S. economy, has led the way. Household spending generates more than two-thirds of U.S. economic activity.
Although they no longer have stimulus payments to fall back on, most households are in surprisingly decent shape more than a year after the onset of the pandemic.
So long as the delta Covid strain is contained, coronavirus cases stay low and more people go back to work, the U.S. economy should grow at a rapid pace through the end of the year, economists say.
Key details: Americans increased spending last month at restaurants and hotels as millions of people went on vacation, visited families and took other trips outside their homes. Whether this spending holds up because of the spread of delta remains to be seen.
Consumers also spent more on gas, electricity and medical drugs.
They cut spending on autos, but mostly because of high prices and limited selection. Automakers have suffered production delays due to parts shortages and used-vehicle prices are still unusually high.
The virus aside, perhaps the biggest threat to the economy is surging inflation. Higher prices could discourage people and cause a slowdown in consumer spending if they persist long enough.
A key measure of inflation known as the PCE jumped 0.5% in June. Price have climbed 4% in the past year — the highest rate since 2008.
What they are saying? “Strong spending and rising incomes in June means we’re heading into the third quarter with consumers primed to keep the economy expanding, maybe even stronger than the second quarter,” said corporate economist Robert Frick of Navy Federal Credit Union.
“As long as an expected fall surge in employment comes together, the only real challenge to the robust recovery will be the delta variant.”