NEW YORK (Reuters) - Consumer incomes rose at the lowest rate in over a year during June, the government reported on Monday, and inflation showed signs of accelerating.
Incomes barely edged up by 0.1 percent after rising 1.8 percent in May. The department said it was the smallest rise in personal incomes since April 2007 when they were flat.
Still, consumer spending rose 0.6 percent in June after gaining 0.8 percent in May. Spending accounts for about two-thirds of national economic growth.
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.
DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL
”It’s negative news. It means there is some inflation leaking into the system, and it puts the Fed into a very difficult position. But given the weakness of the economy, it means they’re going to have to tolerate more inflation than they like. Even with this, I don’t see them raising rates. The economy is just too fragile.
“The markets will interpret this negatively, even if the Fed does tolerate it, it’s going to increasingly put a bit of uncertainty into the situation. Unless (the Fed) they can spin it, what’s the spin on this going to be, it creates another element of uncertainty on the market.”
JEFFERIES & CO. IN NEW YORK:
“That number was pretty high, the year-over-year 4.1 percent number. I really think that number is what the Fed is probably going to take a look at. The core was up a bit. It’s certainly not good news for the inflation picture, but I think the Fed is locked between a very slow economy with this rising inflation environment. I can’t imagine they would do anything based on this number or based on future inflationary numbers because the economy is so weak.”
“The Treasury market right now is going to be driven by people involved in the auctions looking for an excuse to cheapen things up, so the focus seems to be on the inflation side (of the data) which was firm.”
“The consumer is in really bad shape, but that is being masked by the inflation story which dealers are focusing on so they can get these auctions done.”
”It was better than expected, but it’s not great data. It doesn’t show a real lot of strength, so the market was little changed, which is an appropriate response. I don’t think there’s that much to cheer about.
“Troubles with the financial sector, the economy, the U.S. consumer -- there’s no quick fix. Markets are adjusting to that. Many have hoped we’d see the bottom of a V-shaped decline, but I think there’s now a realization that it’s going to be more like an L (in terms of economic growth).”
MARKET REACTION: STOCKS: US benchmark S&P500 index futures were little changed around 1257; BONDS: US benchmark 10-year note yields rose to around 3.96 percent; DOLLAR: The US dollar firmed with the euro quoted around $1.5565 and the yen around 108.19;
EARLIER DATA FROM AUG 4 Challenger Gray monthly layoffs report