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Monday 22 September 2014

US economy powers ahead in June as consumer spending advances

Lucia Mutikani

Published 16/07/2014 | 02:30

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Janet Yellen, chair of the U.S. Federal Reserve, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Tuesday, July 15, 2014. Yellen told lawmakers the central bank must press on with monetary stimulus as "significant slack" remains in labor markets and inflation is still below the Fed's goal. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Janet Yellen
Janet Yellen, chair of the U.S. Federal Reserve, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Tuesday, July 15, 2014. Yellen told lawmakers the central bank must press on with monetary stimulus as "significant slack" remains in labor markets and inflation is still below the Fed's goal. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Janet Yellen

US consumer spending rose solidly in June, in the latest sign that the economy ended the second quarter on a firmer footing.

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That momentum appeared to have carried into the third quarter, with other new data showing factory activity in New York state expanded sharply so far this month.

The commerce department said core sales, which strip out cars, petrol, building materials and food services, increased 0.6pc last month after rising by an upwardly-revised 0.2pc in May.

Core sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported as being flat in May and economists had expected them to rise 0.5pc in June.

June's gains and May's upward revision suggested an acceleration in consumer spending in the second quarter after it was held back by weak healthcare spending in the first three months of the year.

A surprise drop in receipts for cars, however, saw overall retail sales rise only 0.2pc in June after a 0.5pc advance in May.

While the rise in retail sales lagged economists' expectations for a 0.6pc increase, June's report added to signs of the economy's strengthening fundamentals, which could buoy optimism the recovery is on a self-sustaining path.

The economy contracted sharply in the first quarter, but that was probably a temporary setback.

From employment to manufacturing, the economy appears to be firing on nearly all cylinders, with even housing regaining its footing after slumping in late 2013 following a run-up in mortgage rates.

Growth estimates for the second-quarter top a 3pc annual rate.

The steady run of fairly upbeat data, as well as slightly higher inflation readings, prompted Goldman Sachs to move forward its expectations for the first interest rate 
 increase by the Federal Reserve to the third quarter of next year from the first quarter of 2016.

The US central bank, Janet Yellen, which is winding down its monthly bond purchasing programme, has kept its benchmark interest rate near zero since December 2008.

In another report, the New York Fed said its Empire State general business conditions index jumped to 25.60 this month, the highest reading since April 2010, from 19.28 in June.

New orders edged up, while factory employment and shipments surged. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to US factory conditions.

Overall retail sales in June were restrained by a 0.3pc fall in receipts at auto dealerships. The decline is surprising given carmakers reported a surge in motor vehicle sales in June.

Irish Independent

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