US Economy Shows Strength

The US Personal Consumer Expenditure index for June came in higher than expected as homes consumed a large range of goods and services, the rise signifies an increase in the likelihood of consumption maintaining its solid footing through the second quarter. In spite of buoyant consumer expenditure, the Commerce Department on Tuesday reported that inflation is still largely suppressed in the US economy.

This could leas the Federal Reserve Bank to leave the interest rates at its current levels - which are already quite low - at least for a while.

Spending performed by consumers represents more than two-thirds of US economic data, grew by 0.4% in June after its similar change in May.

Economists have recently placed their estimations for consumer spending as gaining 0.3%, and after the actual release value was adjusted for inflation, the consumer expenditure index showed a positive 0.3% after gaining 0.2% in May.

The USD shed some of its losses against the yen and the euro shortly after the data came in. The prices for the US government debt was also negatively affected as it suffered a spate of losses and US stocks also began trading lower.

The data released in June was last week included in the US second-quarter gross domestic product report that reflected a 4.2% annualised growth, it's fastest rate in almost 2 years.

The surge took into account all of the economy's 1.2% growth rate during the period. Despite the possibility that a strong growth pace in consumer spending will not be maintained in the second quarter, analysts remain optimistic that consumer spending will stay striving as it will be supported by the slowly growing wages as the labour market tightens, coupled with the growing housing and stock market prices.

Signs of inflation were very low in June, and the personal consumption expenditures (PCE) price index which does not include energy and volatile food components, soared by 0.1% in June after a 0.2% gain in May.

In the 12 months before June, the core PCE index grew by 1.6%, soaring by the same margin since March. The core PCE is used by the Federal Reserve Bank as its preferred method of calculating inflation and has slumped beneath the US central bank's 2% target.

The 0.7% rise in the purchase of non-durable goods in June also raised consumer spending. Spending on services have also appreciated by 0.5%, but spending on long-lasting manufactured commodities like cars slumped by 0.3%.