US consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that could see the Federal Reserve cutting interest rates on Wednesday for the first time in a decade. The report from the Commerce Department on Tuesday showing the smallest gain in consumer spending in four months came as Fed officials started a two-day policy meeting. The 10-year old economic expansion, the longest in history, is slowing as the stimulus from last year's $1.5 trillion tax cut package fades.
The economy is also facing headwinds from a bitter trade war between the United States and China, a likely disorderly exit from the European Union by Britain and weak global growth. With those risks in mind, Fed Chairman Jerome Powell early this month signalled the US central would ease monetary policy soon. But a strong labour market and signs that the economy was not slowing abruptly have significantly reduced the probability of the Fed reducing borrowing costs by 50 basis points, as anticipated by financial markets earlier this month. President Donald Trump, who has been critical of the Fed, on Tuesday repeated his call for "a large cut."
Consumer spending, which accounts for more than two-thirds of US economic activity, gained 0.3% as an increase in services and outlays on other goods offset a decline in purchases of motor vehicles. Consumer spending rose 0.5% in May. Economists polled by Reuters had forecast consumer spending climbing 0.3% last month. The data was included in last Friday's second-quarter gross domestic product report, which showed consumer spending increased at a 4.3% annualized rate, accelerating from a tepid 1.1% pace in the January-March period.
Robust consumer spending blunted some of the hit to GDP from weak exports, business investment and a slowdown in inventory accumulation. The economy grew at a 2.1% rate last quarter, pulling back from the first quarter's brisk 3.1% pace. Consumer prices as measured by the personal consumption expenditures (PCE) price index edged up 0.1% in June as food and energy prices fell. The PCE price index gained 0.1% in May. That kept the annual increase in the PCE price index at 1.4% for a second straight month.
Excluding the volatile food and energy components, the PCE price index rose 0.2% last month, increasing by the same margin for a third straight month. In the 12 months through June, the so-called core PCE price rose index to 1.6% after advancing 1.5% for three consecutive months. The core PCE index is the Fed's preferred inflation measure and has undershot the central bank's 2% target this year.
The survey's so-called labour market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, rebounded to 33.4 from 28.2 in June, suggesting a drop in the unemployment rate in July. A third report on Tuesday showed the S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas rose 2.4% in May from a year ago after increasing 2.5% in April. House price inflation has been slowing after last year's surge in mortgage rates dampened demand for housing.