June Incomes Rise Smallest in a Year, Prices Up

WASHINGTON(Reuters) – Incomes rose at the lowest rate in over a year during June,the government reported on Monday, and inflation showed signs ofpicking up speed.

The Commerce Department data kept stock futures in slightly negativeterritory and drove bond yields up as investors weighed what it maymean for Federal Reserve policy-makers who meet on Tuesday to weighinterest-rate strategy.

Personal incomes barely edged up 0.1 percent after rising 1.8percent in May. It was the smallest rise in personal incomes sinceApril 2007, when they were flat.

The tiny rise in incomes came as government stimulus payments easedto $27.9 billion in June from $48.1 billion in May. The department saidthat except for the stimulus payments, disposable incomes would haveshrunk in June.

Incomes are under stress as job markets wither, and a separatereport on Monday from employment consulting firm Challenger, Gray &Christmas Inc. underlined the fact that employment prospects are likelyto get worse.

It said planned layoffs at U.S. companies jumped 26 percent in Julyfrom June. Layoffs that were planned totaled 103,312 in July, comparedwith June’s 81,755, the survey found.

The Commerce Department said consumer spending rose 0.6 percent inJune after gaining 0.8 percent in May. However, after accounting forinflation, spending fell 0.2 percent. Spending accounts for abouttwo-thirds of national economic growth but there is a question whetherconsumers will be able to keep spending more.

"Troubles with the financial sector, the economy, the U.S. consumer– there’s no quick fix," said Gail Dudack, chief investment strategistwith Dudack Research Group in New York.

The personal consumption expenditures price index rose 4.1 percenton a year-over-year basis in June – highest since a matching 4.1percent in May 1991 and up from 3.5 percent in May.

The core PCE index, which excludes food and energy items, was up 2.3percent in June, the highest since a matching rate last December, afterrising 2.2 percent in May

That is likely to be worrying for Fed policy-makers meeting onTuesday. The Fed is universally expected to keep key rates unchangedbut may signal its concern that prices are beginning to gain steam.

Doug Roberts, chief investment strategist with Channel Capitalresearch in Shrewsbury, New Jersey, said the price data puts the U.S.central bank in a difficult position but it would be hard to boostrates.

"It means there is some inflation leaking into the system, and itputs the Fed in a difficult position," Roberts said. "but given theweakness of the economy, it means they’re going to have to toleratemore inflation than they like."

(Additional reporting by Richard Leong; Editing by Neil Stempleman)