Personal Consumption Expenditures and Personal Spending in the U.S. both printed worse than expected. PCE increased 0.1% in June versus an increase of 0.2% expected and a revised increase of 0.2% in May. This was the lowest reading in three months. Consumer spending unexpectedly dropped for the first time in almost two years printing a decrease of 0.2% versus an increase of 0.2% eyed. Americans cut their spending by the most since September 2009 and saved at a faster rate, signs that reinforce the economy's lack of vitality.
As income outpaced spending, consumers saved more. The savings rate for June rose to 5.4%, the highest in almost a year. The savings rate was 5.0% in May. With the recovery weak, underlying inflationary pressures remained low. The PCE excluding food and energy increased 1.3% year-over-year in June. The index is closely watched by the Federal Reserve as a gauge for inflation. Wages and salaries decreased in June in every industry survey in the PCE. However, purchases declined at a steeper rate for durable goods, motor vehicles and parts, and services. The only increase in purchases was for nondurable goods.
USD/JPY dropped down to 77.22 at the release and had a short-lived run to the 77.30 mark. The pair will remain under pressure as shorts test the 77.20 mark. Traders are betting that the U.S. will not break its circle of slow growth, a poor labor market, and weak final demand anytime soon.