Household Spending Rose in June, Before Delta Variant Upswing

The spending report reflects that the “economy is still very much on track,” said

Scott Brown,

chief economist at Raymond James Financial. He said any potential impact of the Delta variant’s spread is difficult to predict, but added it would pose a significant risk to economic growth if consumers curtail activities such as traveling and dining out.

Americans’ personal income rose 0.1% in June, as wages and salaries increased. Employers have been boosting pay and other benefits in a bid to attract workers amid difficulties filling open positions. The personal-saving rate fell to 9.4%, but remained higher than pre-pandemic levels.

“Consumers have a lot of pent-up demand and a lot of pent-up wealth that they’re very willing to get rid of in the marketplace by consuming goods and services,” said

Lindsey Piegza,

chief economist at Stifel Financial.

More recent figures on credit-card transactions show consumer spending eased some in July. Rising inflation and the latest surge in virus cases could affect future spending trends. Some companies, such as

Procter & Gamble Co.

, see sales slowing and continuing higher costs for materials and transportation.

The Delta variant also has prompted some local governments and businesses, including Walmart Inc., to reimpose mask mandates, and the Centers for Disease Control and Prevention this week recommended that vaccinated Americans in certain areas wear masks indoors. Some employers are requiring worker vaccinations or delayed office-reopening plans. Overall, however, businesses and consumers are better adapting to each phase of the pandemic.

Inflation has accelerated this year as the economy faces supply-chain bottlenecks and materials shortages. Friday’s report showed that the core personal-consumption expenditures price index—a measure of inflation that excludes often-volatile prices for food and energy—was up 3.5% in June from a year ago, compared with a 3.4% yearly increase in May.

Americans have been doling out money to resume activities outside the home since state and local governments eliminated Covid-19 restrictions earlier this year, a trend that has particularly benefited service-sector industries, such as restaurants and travel. They had been battered earlier in the pandemic as Americans stayed indoors and shifted spending toward household items and other goods.

Spending on long-lasting goods fell again in June, but Americans increased outlays on nondurable goods by 1.8% last month, as they purchased items such as clothing that are also related to resuming outside activities.

U.S. gross domestic product in the second quarter grew at a 6.5% annualized rate, and the size of the economy exceeded its pre-pandemic level. The world economy has also bounced back, likely returning to its pre-pandemic size this spring.

Patrick Marker and Jacob Hough, co-owners of the Alqueria restaurant in Columbus, Ohio, said in-store business has picked up since March as government restrictions eased and more people received Covid-19 vaccinations. Earlier in the pandemic, about 50% of the restaurant’s orders were for carryout, compared with roughly 15% currently, Mr. Marker said.

The restaurant, which serves New American fare, recently hired two servers and added 10 tables to its outdoor seating area. Messrs. Marker and Hough said they are again starting to see formerly regular customers who hadn’t been to the restaurant in more than a year.

“There’s definitely been a shift,” Mr. Marker said. Still, Mr. Hough said the rise in Covid-19 cases is a cause for some worry.

“We’re definitely in an area where people take it more seriously, so I feel like they could easily be back home if things don’t start to turn around a little bit,” Mr. Hough said.

Michelle Meyer, head of U.S. economics at BofA Global Research, said recent data such as credit- and debit-card spending figures haven’t shown a significant downturn in spending during July despite the increase in Covid-19 cases. That could change in the months to come, but a pullback in consumer purchases would likely be “a speed bump in the recovery rather than a stop,” she said.

Figures from Earnest Research, a data analytics company that tracks card spending, showed that consumer spending was up 11.3% in the four weeks ended July 21 compared with the same period during 2020. That was slightly down from the four weeks ended June 30, just ahead of the current jump in Covid-19 cases. An index of consumer sentiment rose slightly in the second half of July from earlier in the month, according to the University of Michigan.

Meanwhile, Federal Reserve Chairman Jerome Powell has maintained that recent price increases are likely to be temporary, but the acceleration in inflation is among the factors that the central bank is monitoring as it considers when to scale back easy-money policies it put in place to support the economy during the pandemic.

“The chance that the pickup in inflation is not transitory and that in fact most of it is not transitory: That’s a risk,” said

David Berson,

chief economist at Nationwide Insurance. For example, a persistent acceleration in inflation could cause a continuous cycle in which workers demand higher wages and employers in turn raise the prices they charge consumers, Mr. Berson added.

Write to Amara Omeokwe at [email protected]