INSTANT VIEW: U.S. personal income fell in June

NEW YORK (Reuters) - U.S. consumer spending rose slightly more than expected in June, lifted by expenditures on nondurable goods even as incomes saw their biggest drop in four-and-a-half years, a government report showed on Tuesday.

KEY POINTS: * The Commerce Department said spending rose 0.4 percent after a revised 0.1 percent increase in May, previously reported as a 0.3 percent rise. * That compared to market expectations for a 0.3 percent increase in spending, which accounts for over two-thirds of U.S. economic activity. However, adjusted for inflation, spending fell 0.1 percent after being flat in May. * A government report last Friday showed spending fell at a 1.2 percent rate in the second quarter, after rising 0.6 percent in the January-March period. * Savings fell to an annual rate of $505 billion, with the saving rate slipping to 4.6 percent versus 6.2 percent in May.

COMMENTS:

ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW

YORK:

"The message to take away from this is although we've seen improvements in parts of the economy, consumer spending remains quite weak. We haven't seen any improvement in that component in the economy.

"Savings rate will be higher in the next 10 years, but consumers won't be pulling back spending as much as some think... This will be an investment-led recovery rather than a consumer-led one. Businesses in general have already gone through deleveraging in the last recession and they are in good shape with strong balance-sheets.

"The savings rate came down and this is where it will stay for a while.

"The downward revisions could be a drag on second quarter GDP. Inflation is definitely not a concern. It may actually be too low in the near term."

DENNIS CAJIGAS, SENIOR MARKET STRATEGIST, LIND-WALDOCK

BROKERAGE, CHICAGO:

"While the numbers in themselves are bullish, I think the bears will have a slight edge today at least within the equities market.

"Even though there was a bit of euphoria about data (in terms of economic recovery hopes), we're in an overbought situation in the market, so those numbers will be discounted during trading today.

"Overall, investors will be profit-taking today."

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, JOHNSON ILLINGTON

ADVISORS, ALBANY, NEW YORK:

"It's obviously a modestly sharper decline than had been expected, but it's very much affected by the unwinding of the transfer payments from the Obama administration stimulus plan. So you need to, with personal income, you need to take out the month to month swings and if you do that, you do see that personal income continues to decline. The good news is personal spending rose. If you back away from these numbers and look at them over time, it indicates the economy is continuing to contract but probably not at anywhere near the pace we saw in the fourth-quarter, first-quarter and I would say the second quarter as well. In other words, the economy is stabilizing."

BILL O'DONNELL, HEAD OF U.S. TREASURY STRATEGY, RBS SECURITIES,

GREENWICH, CONNECTICUT:

"Basically as expected. We at RBS had expected these exact numbers with personal income down 1.3 and personal consumption up 0.4 -- the drop in personal income reflects the surge in May, which was from one-off transfer payments to retirees associated with the stimulus. It was our view that the June data would show an unwind of this effect, and that's exactly what we've seen. As a result, the personal savings rate has fallen back a little bit, but it still remains high relative to the last 5-10 years, and we expect it may even go higher in the months ahead as consumers deleverage.

"We've seen rates drop. It's all eyes on the stock market, at least until we see the whites of the eyes of the non-farm payroll number on Friday. It's likely that stocks are going to remain a major driver of Treasury prices from now until Friday at 8:30."

TOMMY WILLIAMS, PRESIDENT OF WILLIAMS FINANCIAL ADVISORS IN

SHREVEPORT, LOUISIANA:

"Fear is subsiding somewhat as this discussion of the end of the recession gets pretty prevalent. Consumers are starting to spend some of the cash they have been hoarding."

"You are seeing that with automobiles and consumer goods in general. Personal spending's rise is pretty consistent with that."

ALAN GAYLE, SENIOR INVESTMENT STRATEGIST, RIDGEWORTH

INVESTMENTS, RICHMOND, VIRGINIA:

"I think the data shows that consumer confidence appears to be bottoming and turning higher, though headwinds from job losses remain a significant hurdle.

"I don't think it'll move the market today. The numbers aren't far off consensus, but after such a strong run-up yesterday, that could make the marker vulnerable for today's trading. Consumers want to spend, they like to buy things, and Cash for Clunkers reflects the desire of consumers to buy and their willingness to buy when there is a good deal. But ultimately we have these headwinds of high debt levels and job losses that are going to prevent the consumer from being as strong a player in the economy as they have been in the past."

JOHN SPINELLO, TREASURY BOND STRATEGIST, JEFFERIES & CO, NEW

YORK:

"The data that we got today reversed the income numbers that were elevated by the transfer payments, so that was expected. Savings rate dropped as expected. Core PCE month-over-month just as expected, and the year-over-year dropped to 1.5, so that is somewhat of a positive. There's not really anything there that's going to change expectations for spending or income. The internals of the income number do show wages and benefits with month-over-month declines, so that hasn't changed much what we've seen in the recent past. I don't think it's going to have much of an effect. Probably more important is tomorrow's package and any alteration to the TIPS schedule. This data today is probably not market-moving, but if there is a correction in equities we may get a 7 to 8 basis point move in Treasuries."

JIM DEMASI, CHIEF FIXED INCOME STRATEGIST, STIFEL NICOLAUS &

CO. INC., BALTIMORE:

"Personal income came in below expectations and the year-over-year PCE came in negative. The reality of the economy is that it's still working through a period of deflation. This is very bond friendly and that will keep a lid on long-term interest rates."

MARKET REACTION: STOCKS: U.S. stock index futures add losses BONDS: U.S. Treasury debt prices extend gains DOLLAR: U.S. dollar holds gains versus euro