Wednesday, August 02, 2000

Spending remains strong

New interest increase possible

By Martin Crutsinger
The Associated Press

        WASHINGTON — Americans went back to shopping in June, especially for big-ticket items such as cars, pushing up consumer spending by the largest amount in three months.

        The 0.5 percent gain in consumer spending, which accounts for two-thirds of all economic activity, was the best showing since a similar increase in March. Spending had slowed to increases of 0.2 percent in April and 0.3 percent in May.

        Many economists viewed the new report as another sign that the economy is still feeling few effects from a string of six interest rate increases engineered by the Federal Reserve starting last summer.

        They said the rebound in retail activity and other signs of newfound strength raised the likelihood of a seventh rate increase by the Fed when the central bank next meets Aug. 22.

        “The consumer has not dropped shopping,” said Paul Taylor, chief economist for the National Automobile Dealers Association.

        He noted that much of the strength in June came from a rebound in auto sales, which drove the durable-goods category of spending up by 0.9 percent after removing the impact of inflation. It's the first advance in this key sector since February.

        “Consumer confidence remains high and that is propelling robust consumer durable sales,” Mr. Taylor said, predicting that new-vehicle sales would hit 17 million units this year, giving the auto industry back-to-back record-breaking years.

        However, two other reports Thursday did provide hints of a slowdown. The National Association of Purchasing Managers said its production index remained at 51.8 percent in July. That matched the June level and was the lowest this key gauge of manufacturing activity has been since January 1999, when manufacturing was still reeling from the impact of the Asian financial crisis.

        Also, the Commerce Department said Tuesday that construction spending fell 1.7 percent in June, the third consecutive monthly decline, as the Fed's previous interest rate increases continued to take their toll on house building.

        Some analysts said they thought the Fed would use these signs of a slowdown as justification for keeping interest rates unchanged this month, despite last week's surprisingly strong report of overall economic growth in the second quarter.


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