WASHINGTON
(Reuters) - Incomes rose at the lowest rate in over a year during June,
the government reported on Monday, and inflation showed signs of
picking up speed.
The Commerce Department data kept stock futures in slightly negative
territory and drove bond yields up as investors weighed what it may
mean for Federal Reserve policy-makers who meet on Tuesday to weigh
interest-rate strategy.
Personal incomes barely edged up 0.1 percent after rising 1.8
percent in May. It was the smallest rise in personal incomes since
April 2007, when they were flat.
The tiny rise in incomes came as government stimulus payments eased
to $27.9 billion in June from $48.1 billion in May. The department said
that except for the stimulus payments, disposable incomes would have
shrunk in June.
Incomes are under stress as job markets wither, and a separate
report on Monday from employment consulting firm Challenger, Gray &
Christmas Inc. underlined the fact that employment prospects are likely
to get worse.
It said planned layoffs at U.S. companies jumped 26 percent in July
from June. Layoffs that were planned totaled 103,312 in July, compared
with June's 81,755, the survey found.
The Commerce Department said consumer spending rose 0.6 percent in
June after gaining 0.8 percent in May. However, after accounting for
inflation, spending fell 0.2 percent. Spending accounts for about
two-thirds of national economic growth but there is a question whether
consumers 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 strategist
with Dudack Research Group in New York.
The personal consumption expenditures price index rose 4.1 percent
on a year-over-year basis in June - highest since a matching 4.1
percent in May 1991 and up from 3.5 percent in May.
The core PCE index, which excludes food and energy items, was up 2.3
percent in June, the highest since a matching rate last December, after
rising 2.2 percent in May
That is likely to be worrying for Fed policy-makers meeting on
Tuesday. The Fed is universally expected to keep key rates unchanged
but may signal its concern that prices are beginning to gain steam.
Doug Roberts, chief investment strategist with Channel Capital
research in Shrewsbury, New Jersey, said the price data puts the U.S.
central bank in a difficult position but it would be hard to boost
rates.
"It means there is some inflation leaking into the system, and it
puts the Fed in a difficult position," Roberts said. "but given the
weakness of the economy, it means they're going to have to tolerate
more inflation than they like."
(Additional reporting by Richard Leong; Editing by Neil Stempleman)
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