Tag Archives: United States

Iran begins process of making enriched uranium metal; U.S., E3 dismayed

By Francois Murphy, Humeyra Pamuk and Arshad Mohammed

VIENNA/WASHINGTON (Reuters) -Iran has begun the process of producing enriched uranium metal, the U.N. atomic watchdog said on Tuesday, a move that could help it develop a nuclear weapon and that three European powers said threatened talks to revive the 2015 Iran nuclear deal.

Iran’s steps, which were disclosed by the International Atomic Energy Agency and which Tehran said were aimed at developing fuel for a research reactor, also drew criticism from the United States, which called them an “unfortunate step backwards.”

U.S. and European officials made clear that Iran’s decision would complicate, and potentially torpedo, indirect U.S.-Iranian talks seeking to bring both nations back into compliance with the 2015 deal, which was abandoned by former U.S. President Donald Trump.

The deal imposed curbs on Iran’s nuclear program to make it harder for Tehran to develop fissile material for nuclear weapons in return for the lifting of economic sanctions. After Trump withdrew, Iran began violating many of its restrictions.

Tehran has already produced a small amount of uranium metal this year that was not enriched. That is a breach of the deal, which bans all work on uranium metal since it can be used to make the core of a nuclear bomb.

“Today, Iran informed the Agency that UO2 (uranium oxide) enriched up to 20% U–235 would be shipped to the R&D laboratory at the Fuel Fabrication Plant in Esfahan, where it would be converted to UF4 (uranium tetrafluoride) and then to uranium metal enriched to 20% U–235, before using it to manufacture the fuel,” an IAEA statement said.

A confidential IAEA report seen by Reuters said the agency had confirmed that Iran had taken the second of the four steps described, making clear it has begun the process.

Britain, France and Germany said on Tuesday they had “grave concern” about Iran’s decision, which violates the nuclear deal formally named the Joint Comprehensive Plan of Action (JCPOA).

“Iran has no credible civilian need for uranium metal R&D and production, which are a key step in the development of a nuclear weapon,” they said in a joint statement issued by Britain’s foreign ministry.

“With its latest steps, Iran is threatening a successful outcome to the Vienna talks despite the progress achieved in six rounds of negotiations,” they said, and urged Iran to return to the talks, which began in April and adjourned on June 20. No date has been set for a next round.

U.S. State Department spokesman Ned Price said that Washington was not setting a deadline for the talks but noted “that as time proceeds Iran’s nuclear advances will have a bearing on our view of returning to the JCPOA.”

Price said the United States found it “worrying” that Iran was continuing to violate the agreement “especially with experiments that have value for nuclear weapons research.

“It’s another unfortunate step backwards for Iran,” he said.

(Reporting by Francois Murphy in Vienna and by Humeyra Pamuk and Arshad Mohammed in Washington; Additional reporting by Doina Chiacu, Jonathan Landay and Simon Lewis in Washington and by David Milliken in London; Writing by Francois Murphy and Arshad Mohammed; Editing by David Goodman and Sonya Hepinstall)

China, U.S. can coexist in peace but challenge is enormous – White House

By David Brunnstrom and Humeyra Pamuk

WASHINGTON (Reuters) – White House Indo-Pacific coordinator Kurt Campbell said on Tuesday that it was possible for China and United States to coexist in peace but the challenge was enormous and Beijing had become increasingly assertive.

At an event hosted by the Asia Society think tank, Campbell said President Joe Biden will host a summit later this year with the leaders of Australia, India and Japan – the so-called “Quad” grouping that Washington see as a means of standing up to China.

Asked when he expected a first meeting between Biden and Chinese leader Xi Jinping and whether this could come at the G20 summit in October, he replied: “My expectation will be that we’ll have some sort of engagement before too long.”

Campbell said the challenge for the United States would be to come up with a strategy that presented China with opportunities, but also a response if it takes steps “antithetical to the maintenance of peace and stability”.

There were likely to be “periods of uncertainty, perhaps even periods of occasional raised tensions,” he said.

“Do I think it’s possible that the United States and China can coexist and live in peace? Yes I do. But I do think the challenge is enormously difficult for this generation and the next,” he said.

He said Beijing had been increasingly assertive in recent times, taking on many countries simultaneously, a strategy that contrasted with how it operated in the 1990’s.

​ He criticized China’s approach to U.S. ally Australia.

“I’m not sure they have the strategic thinking to go back to a different kind of diplomacy towards Australia right now. I see a harshness in their approach that appears unyielding”

On Taiwan, the self-ruled U.S.-backed island China sees as part of its territory and wants to reclaim, Campbell maintained a cautious approach.

He said the United States supports having a strong unofficial relationship with Taiwan but does not support its independence.

“We fully recognize, understand the sensitivities involved here,” he said. “We do believe that Taiwan has a right to live in peace. We want to see its international role, particularly in areas like vaccines, and issues associated with the pandemic, they should have a role to play here, they should not be shunned in international community.”

(Reporting by David Brunnstrom and Humeyra Pamuk; Editing by Angus MacSwan)

U.S. companies hire more workers; signs labor crunch may be easing

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth accelerated in June, offering tentative signs that a worker shortage could be starting to ease as companies raise wages and offer incentives to entice millions of unemployed Americans sitting at home.

The Labor Department’s closely watched employment report on Friday also showed just over 150,000 people entered the labor force last month. The report suggested the economy ended the second quarter with strong growth momentum, following a reopening made possible by vaccinations against COVID-19.

Still, employment gains remained less than the million or more per month that economists and others had been forecasting at the beginning of the year.

“This may be a sign that some of the temporary labor shortages holding back the employment recovery are starting to ease,” said Andrew Hunter, a senior U.S. economist at Capital Economics.

Nonfarm payrolls increased by 850,000 jobs last month after rising 583,000 in May. That left employment 6.8 million jobs below its peak in February 2020. Economists polled by Reuters had forecast payrolls advancing by 700,000 jobs. There are a record 9.3 million job openings.

The leisure and hospitality industry added 343,000 jobs, accounting for 40% of the employment gains in June. More than 150 million people are fully immunized, leading to pandemic-related restrictions on businesses and mask mandates being lifted. Government employment jumped by 188,000 jobs, driven by state and local government education. End of school year layoffs were fewer relative to the previous year.

Manufacturing added a modest 15,000 jobs. Factories are struggling with rampant worker shortages as well as scarce raw materials, which are forcing some to cut production.

Construction payrolls contracted again last month. Though the sector remains supported by robust demand for housing, expensive lumber is hampering homebuilding.

Politicians, businesses and some economists have blamed enhanced unemployment benefits, including a $300 weekly check from the government, for the labor crunch. Lack of affordable child care and fears of contracting the coronavirus have also been blamed for keeping workers, mostly women, at home.

There have also been pandemic-related retirements as well as career changes. Economists generally expect the labor supply squeeze to ease in the fall as schools reopen and the government-funded unemployment benefits lapse but caution many unemployed will probably never return to work.

Record-high stock prices and surging home values have also encouraged early retirements.

U.S. stocks opened higher on the data. The dollar fell against a basket of currencies. U.S. Treasury prices rose.

WAGES RISING

Average hourly earnings rose 0.3% last month after gaining 0.4% in May. That raised the year-on-year increase in wages to 3.6% from 1.9% in May. Annual wage growth was in part flattered by so-called base effects following a big drop last June.

According to job search engine Indeed, 4.1% of jobs postings advertised hiring incentives through the seven days ending June 18, more than double the 1.8% share in the week ending July 1, 2020. The incentives, which included signing bonuses, retention bonuses or one-time cash payments on being hired, ranged from as low as $100 to as high as $30,000 in the month ended June 18.

Some restaurant jobs are paying as much as $27 per hour plus tips, according to postings on Poachedjobs.com, a national job board for the restaurant/hospitality industry. The federal minimum wage is $7.25 per hour, but is higher in some states.

With employment not expected to return to its pre-pandemic level until sometime in 2022, rising wages are unlikely to worry Federal Reserve officials even as inflation is heating up because of supply constraints. Fed Chair Jerome Powell has repeatedly stated he expects high inflation will be transitory.

The U.S. central bank last month opened talks on how to end its crisis-era massive bond-buying.

Though the unemployment rate rose to 5.9% from 5.8% in May, that was because 151,000 people entered the labor force. The jobless rate continued to be understated by people misclassifying themselves as being “employed but absent from work.” Without this misclassification, the unemployment rate would have been 6.1% in June.

(Reporting by Lucia Mutikani; Editing by Dan Burns, Chizu Nomiyama and Andrea Ricci)

Era ends, war looms as U.S. forces quit main base in Afghanistan

KABUL (Reuters) -American troops pulled out of their main military base in Afghanistan on Friday, leaving behind a piece of the World Trade Center they buried 20 years ago in a country that the top U.S. commander has warned may descend into civil war without them.

“All American soldiers and members of NATO forces have left the Bagram air base,” said a senior U.S. security official on condition of anonymity.

Though a few more troops have yet to withdraw from another base in the capital Kabul, the Bagram pullout brings an effective end to the longest war in American history.

The base, an hour’s drive north of Kabul, was where the U.S. military has coordinated its air war and logistical support for its entire Afghan mission. The Taliban thanked them for leaving.

“We consider this withdrawal a positive step. Afghans can get closer to stability and peace with the full withdrawal of foreign forces,” Taliban spokesman Zabihullah Mujahid told Reuters.

Other Afghans were more circumspect. “The Americans must leave Afghanistan and there should be peace in this country,” said Kabul resident Javed Arman. But he added: “We are in a difficult situation. Most people have fled their districts and some districts have fallen. Seven districts in Paktia province have fallen and are now under Taliban control.”

For the international forces, more than 3,500 of whom died in Afghanistan, the exit came with no pageantry. A Western diplomat in Kabul said the United States and its NATO allies had “won many battles, but have lost the Afghan war”.

It was at Bagram, by a bullet-ridden Soviet-built air strip on a plain hemmed in by the snow-capped peaks of the Hindu Kush, that New York City firefighters and police were flown to bury a piece of the World Trade Center in December, 2001, days after the Taliban were toppled for harboring Osama bin Laden.

It was also here that the CIA ran a “black site” detention center for terrorism suspects and subjected them to abuse that President Barack Obama subsequently acknowledged as torture.

Later it swelled into a sprawling fortified city for a huge international military force, with fast food joints, gyms and a café serving something called “the mother of all coffees.” Two runways perpetually roared. Presidents flew in and gave speeches; celebrities came and told jokes.

An Afghan official said the base would be officially handed over to the government at a ceremony on Saturday.

The U.S. defense official said General Austin Miller, the top U.S. commander in Afghanistan “still retains all the capabilities and authorities to protect the force” stationed in the capital, Kabul.

Earlier this week, Miller told journalists in Kabul that civil war for Afghanistan was “certainly a path that can be visualized”, with Taliban fighters sweeping into districts around the country in recent weeks as foreign troops flew home.

Two other U.S. security officials said this week the majority of U.S. military personnel would most likely be gone by July 4, with a residual force remaining to protect the embassy.

That would be more than two months ahead of the timetable set by Biden, who had promised they would be home by Sept. 11, the 20th anniversary of the attack that brought them here.

Washington agreed to withdraw in a deal negotiated last year with the Taliban under Biden’s predecessor Donald Trump, and Biden rejected advice from generals to hang on until a political agreement could be reached between the insurgents and the U.S.-backed Kabul government of President Ashraf Ghani.

“MANAGE THE CONSEQUENCES”

Last week, Ghani visited Washington. Biden told him: “Afghans are going to have to decide their future, what they want.” Ghani said his job was now to “manage the consequences” of the U.S. withdrawal.

In exchange for the U.S. withdrawal, the Taliban have promised not to allow international terrorists to operate from Afghan soil. They made a commitment to negotiate with the Afghan government, but those talks, in the Qatari capital Doha, made little progress.

In a statement, the U.S. Embassy in Afghanistan this week said the United States was firmly committed to assist Afghanistan and will provide security assistance of $3 billion in 2022.

“We urge an end to violence, respect for the human rights of all Afghans and serious negotiations in Doha so that a just and durable peace may be achieved,” the embassy stated.

The Taliban refuse to declare a ceasefire. Afghan soldiers have been surrendering or abandoning their posts. Militia groups that fought against the Taliban before the Americans arrived are taking up arms to fight them again.

A senior western diplomat said the United States has asked three Central Asian nations – Kazakhstan, Tajikistan and Uzbekistan – to temporarily provide home to about 10,000 Afghan citizens who had either worked with the U.S. or allied forces.

Several European nations were also providing refuge to hundreds of Afghan employees and their families as they faced direct threat from the Taliban.

Since Biden’s announcement that he would press ahead with Trump’s withdrawal plan, insurgents have made advances across Afghanistan, notably in the north, where for years after their ouster they had a minimal presence.

Fighting was intensifying between government forces and the Taliban in the northeastern province of Badakshan, officials said on Friday.

(Reporting by Afghanistan bureau; Writing by Peter Graff, Editing by William Maclean)

White House sending special teams to COVID-19 hot spots to combat Delta variant

By Andrea Shalal and Carl O’Donnell

WASHINGTON (Reuters) – The White House on Thursday said it would send out special teams to hot spots around the United States to combat the highly contagious Delta coronavirus variant, and urgently called on Americans who have not been vaccinated to get shots.

White House COVID-19 senior adviser Jeffrey Zients told reporters the “surge response” teams would be ready to speed additional testing supplies and therapeutics to communities that were experiencing increases in COVID-19 cases.

The seven-day-average number of COVID-19 cases in the United States has risen 10% since last week, U.S. Centers for Disease Control and Prevention Director (CDC) Rochelle Walensky said on a Tuesday press call.

The more easily transmitted Delta variant, which was first detected in India, is thought to have become the second most prevalent coronavirus variant in the United States, she added.

“It is clear that communities where people remain unvaccinated are communities that remain vulnerable,” Walensky said, adding that 1,000 counties in the United States have vaccination rates below 30%.

Zients said federal personnel will assist communities with public health staffing and the CDC will provide assistance in containing potential outbreaks.

The United States remains a world leader in COVID-19 vaccinations, with more than 180 million Americans having received at least one shot.

(Reporting by Lisa Lambert, Carl O’Donnell and Andrea Shalal; Editing by Jonathan Oatis and Bill Berkrot)

Iran names hardline cleric as top judge amid calls for probe into past abuses

DUBAI (Reuters) -Iran’s supreme leader promoted a hardline cleric to serve as head of the judiciary on Friday, amid international calls for investigations into allegations of abuses.

Gholamhossein Mohseni Ejei, now the judiciary’s deputy head, will replace Ebrahim Raisi, who takes office in August as president after winning a June 18 election.

Ejei was put on U.S. and EU sanctions blacklists a decade ago for his role in a crackdown on a popular uprising when he served as intelligence minister during a disputed election.

The choice of someone with such a high profile as a hardliner could draw further attention to allegations of past abuses by Iran at a time when the new U.S. administration is trying to negotiate a thaw with Tehran.

This week, a U.N. expert called for a new investigation into Raisi’s alleged role in the deaths of thousands of political prisoners when he served as a judge in the 1980s. Raisi denies wrongdoing.

Rights groups have criticized the election of Raisi in a vote in which prominent rivals were barred from standing.

In a statement, Khamenei urged Ejei to “promote justice, restore public rights, ensure legitimate freedoms, and oversee the proper implementation of laws, prevent crime, and resolutely fight corruption,” state news agency IRNA reported.

The U.N. investigator on human rights in Iran, Javaid Rehman, told Reuters this week there should be an independent inquiry into allegations of state-ordered executions of thousands of political prisoners in 1988, and the role played by Raisi as Tehran deputy prosecutor at the time.

“As I have described in my reports, there is a widespread and systemic impunity in the country for gross violations of human rights, both historically in the past as well as in the present,” he said. “There are very few if any real avenues for accountability in line with international standards within domestic channels.”

Iran has repeatedly dismissed the criticism of its human rights record as baseless and a result of a lack of understanding of its Islamic laws. It says its legal system is independent and not influenced by political interests.

Amnesty International and Human Rights Watch said last month that Raisi’s election was a blow for human rights and called for him to be investigated over his role in the 1988 executions.

(Reporting by Dubai newsroom, Stephanie Nebehay in Geneva, Robin Emmot in Brussels and Arshad Mohammed in Washington; Editing by William Maclean and Howard Goller)

Delta variant gains ground in U.S., men do worse with COVID-19

By Nancy Lapid

(Reuters) – The following is a roundup of some of the latest scientific studies on the novel coronavirus and efforts to find treatments and vaccines for COVID-19, the illness caused by the virus.

Highly contagious Delta variant gaining ground in U.S.

The highly transmissible Delta variant of SARS-CoV-2, first identified in India, has become the most prevalent variant among new COVID-19 cases in the United States, according to California-based genomics company Helix. The company’s computer models indicate that Delta now accounts for around 40% of new U.S. cases, Dr. William Lee, vice president of science at Helix, said in a statement provided to Reuters. The models, based on 27,717 virus samples from 687 counties across the United States, also indicated that the worrisome Gamma variant, first identified in Brazil, accounts for about 15% of new cases. Helix researchers have noted occasional cases of an “offspring” variant of Delta called Delta-plus, but they “aren’t seeing any evidence suggesting that these are driving the growth of Delta around the country yet,” Lee said. Earlier in June, the researchers reported on the medical website medRxiv ahead of peer review that the percentage of new COVID-19 cases due to the variant first identified in Britain, known as Alpha, had dropped from 70% in mid-April 2021 to 42% six weeks later. Now, Lee said, Alpha “is down to around 20%.” Lee said his team has submitted an update to the previous medRxiv preprint and is waiting for approval.

Regardless of health status, men do worse with COVID-19

Men appear more likely than women to experience severe outcomes from COVID-19 regardless of whether the men have underlying health conditions, according to a new study. Researchers in New York City who tracked roughly 5,000 patients of both sexes who were diagnosed in early 2020 found that men were sicker when first diagnosed and had a higher need for intensive care treatment and higher rates of death than women. This was true even though the men on average were younger and less likely than women to have risk factors such as obesity and high blood pressure that previously have been linked with poor COVID-19 outcomes. Among women, the likelihood of severe COVID-19 outcomes did seem to be related to their health status, the researchers said in a report published on Wednesday in the journal Communications Medicine. A second analysis of another group of roughly 1,600 patients in New York City diagnosed later in the year showed similar patterns. The authors noted that because their information on patients’ pre-existing medical problems may have been incomplete, larger studies are needed to confirm their findings and to explain the causes.

Moderna vaccine antibodies neutralize variants in lab study

The mRNA vaccine from Moderna Inc can defend against emerging variants with only modestly reduced effectiveness, laboratory experiments indicated. Moderna researchers studied blood serum obtained from eight volunteers who had received the second dose of the vaccine a week earlier. They found the vaccine had produced antibodies capable of neutralizing all variants, including additional versions of the Beta variant first identified in South Africa and three lineages of variants first identified in India, including the Kappa and Delta variants. The analysis did show some reduction of neutralization, by 2.1 fold against Delta, 3.3-3.4 fold against Kappa and 3.2 fold against Gamma, which was first identified in Brazil. “These new data are encouraging and reinforce our belief that the Moderna COVID-19 vaccine should remain protective against newly detected variants,” Moderna Chief Executive Stéphane Bancel said. The Moderna data was posted on Monday on the bioRxiv medical website ahead of peer review. Earlier in June, researchers reported in the journal Nature that the mRNA vaccine from Pfizer and BioNTech elicited antibodies that could neutralize all tested variants, including Delta, although at reduced strength.

(Reporting by Nancy Lapid and Mrinalika Roy; Editing by Will Dunham)

U.S., other nations call for unimpeded delivery of aid to Syria

WASHINGTON (Reuters) – The United States and other nations in a joint statement on Monday reiterated their call for immediate nation-wide ceasefire in Syria and unimpeded delivery of aid to the war-torn country.

The group of 19 countries as well as the European Union and Arab League said in the statement released after a meeting of their ministers that United Nations Security Council Resolution 2254, the 2015 resolution that laid out the steps for a ceasefire and political transition in Syria, is the “only solution” to the country’s decade-long conflict.

(Reporting by Lisa Lambert)

U.S. warplanes strike Iran-backed militia in Iraq, Syria

By Phil Stewart

WASHINGTON (Reuters) -The United States said on Sunday it carried out another round of air strikes against Iran-backed militia in Iraq and Syria, this time in response to drone attacks by the militia against U.S. personnel and facilities in Iraq.

In a statement, the U.S. military said it targeted operational and weapons storage facilities at two locations in Syria and one location in Iraq. It did not disclose whether it believed anyone was killed or injured but officials said assessments were ongoing.

Iraqi militia groups aligned with Iran in a statement named four members of the Kataib Sayyed al-Shuhada faction they said were killed in the attack on the Syria-Iraq border. They vowed to retaliate.

The strikes came at the direction of President Joe Biden, the second time he has ordered retaliatory strikes against Iran-backed militia since taking office five months ago. Biden last ordered limited strikes in Syria in February, that time in response to rocket attacks in Iraq.

“As demonstrated by this evening’s strikes, President Biden has been clear that he will act to protect U.S. personnel,” the Pentagon said in a statement.

The strikes came even as Biden’s administration is looking to potentially revive a 2015 nuclear deal with Iran. The decision to retaliate appears to show how Biden aims to compartmentalize such defensive strikes, while simultaneously engaging Tehran in diplomacy.

Biden’s critics say Iran cannot be trusted and point to the drone attacks as further evidence that Iran and its proxies will never accept a U.S. military presence in Iraq or Syria.

Iran called on the United States to avoid “creating crisis” in the region.

“Certainly what the United States is doing is disrupting security in the region, and one of the victims of this disruption will be the United States,” Iranian Foreign Ministry spokesman Saeed Khatibzadeh said on Monday.

In an apparent indication that Baghdad is determined to avoid getting sucked into a U.S.-Iran escalation, Iraq’s military issued a rare condemnation of the U.S. strikes. The Iraqi and U.S. militaries continue close coordination in a separate battle in Iraq, fighting remnants of the Sunni extremist group Islamic State.

Biden and the White House declined comment on the strikes on Sunday. But Biden will meet Israel’s outgoing president, Reuven Rivlin, at the White House on Monday for a broad discussion that will include Iran and U.S. efforts to re-enter the Iran nuclear deal. Those efforts have raised serious concerns in Israel, Iran’s arch-foe.

U.S. officials believe Iran is behind a ramp-up in increasingly sophisticated drone attacks and periodic rocket fire against U.S. personnel and facilities in Iraq, where the U.S. military has been helping Baghdad combat the remnants of Islamic State.

Two U.S. officials, speaking to Reuters on condition of anonymity, said Iran-backed militias carried out at least five drone attacks against facilities used by U.S. and coalition personnel in Iraq since April.

The Pentagon said the facilities targeted were used by Iran-backed militia including Kataib Hezbollah and Kataib Sayyid al-Shuhada.

One of the facilities targeted was used to launch and recover the drones, a defense official said.

The U.S. military carried out strikes with F-15 and F-16 aircraft, officials said, adding the pilots made it back from the mission safely.

“We assess each strike hit the intended targets,” one of the officials told Reuters.

Iraq’s government is struggling to deal with militias ideologically aligned with Iran which are accused of rocket fire against U.S. forces and of involvement in killing peaceful pro-democracy activists.

Earlier in June, Iraq released Iran-aligned militia commander Qasim Muslih, who was arrested in May on terrorism-related charges, after authorities found insufficient evidence against him.

(Reporting by Phil Stewart in Washington; Additional reporting by Steve Holland in Washington, John Davison in Baghdad; Editing by Matthew Lewis, William Maclean)

U.S. consumer spending takes breather amid shortages; inflation rises

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending paused in May as shortages hurt motor vehicle purchases, but the supply constraints and increased demand for services helped to lift prices, with the Federal Reserve’s main inflation measure rising by the most in 29 years.

There was, however, some good news on inflation. Consumers this month perceived higher inflation to be temporary, a survey showed on Friday, aligning with the views of Fed Chair Jerome Powell and Treasury Secretary Janet Yellen. Consumers’ inflation expectations are key as they can influence households’ behavior.

With at least 150 million Americans fully vaccinated against COVID-19, which is allowing the economy to reopen and people to travel, dine out and engage in other activities that were restricted during the pandemic, consumer spending is expected to pick up in the coming months. Trillions of dollars in excess savings and rising household wealth due to gains in stock prices and home values are expected to provide a powerful tailwind.

“Spending growth will shift to services from goods, and drive a strong economic recovery throughout the rest of 2021 and all of 2022,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh. “The biggest drags are higher prices for some goods and services and shortages due to production bottlenecks.”

The unchanged reading in consumer spending, which accounts for more than two-thirds of U.S. economic activity, followed an upwardly revised 0.9% jump in April, the Commerce Department said. Consumer spending was previously reported to have increased 0.5% in April. Economists polled by Reuters had forecast consumer spending would rise 0.4% in May.

Motor vehicles and some household appliances are scarce because of supply bottlenecks stemming from the pandemic. A global shortage of semiconductors is hampering motor vehicle production. Spending is also starting to shift back to the services part of the economy, which accounts for two-thirds of consumer spending, though the pace last month was insufficient to offset the drag from goods.

Spending on services rose 0.7%, led by recreation, restaurants and hotels as well as housing and utilities. Spending on goods fell 1.3%, with outlays of long-lasting goods like motor vehicles tumbling 2.8%. Goods spending surged as the pandemic confined people to their homes.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 0.5% after advancing 0.7% in April. In the 12 months through May, the so-called core PCE price index shot up 3.4%, the largest gain since April 1992. The core PCE price index rose 3.1% on a year-on-year basis in April.

The core PCE price index is the Fed’s preferred inflation measure for its flexible 2% target. Year-on-year inflation is accelerating in part as last spring’s weak readings drop from the calculation.

Stocks on Wall Street were trading largely higher, with the S&P 500 index hitting a record high as investors focused on the moderation in the monthly inflation reading. The dollar slipped against a basket of currencies. U.S. Treasury prices were mostly lower.

NO RUNAWAY INFLATION

Though the so-called base effects likely peaked in May, inflation will probably remain high in the near term because of the supply constraints and worker shortages, which are boosting wage growth.

“While we foresee increased inflation stickiness, with core PCE inflation hovering around 3.0% in the second half (of the year), we don’t foresee runaway inflation,” said Lydia Boussour, lead U.S. economist at Oxford Economics in New York.

Consumers seem to agree. The University of Michigan consumer survey’s one-year inflation expectation dropped to 4.2% in June from a decade-high 4.6% in May. The survey noted that “consumers also believed that the price surges will mostly be temporary.”

The five-to-10-year inflation expectation fell to 2.8% this month from 3.0% in May. Fed officials put more emphasis on the five-to-10-year series.

Powell acknowledged this week that “inflation has increased notably in recent months,” but told lawmakers that the U.S. central bank “will not raise interest rates preemptively because we fear the possible onset of inflation.”

When adjusted for inflation, consumer spending fell 0.4% last month after rising 0.3% in April. Despite May’s drop in the so-called real consumer spending, consumption is running higher than its pace in the first quarter.

Gross domestic product growth estimates for this quarter are around a 9% annualized rate, which would be an acceleration from the 6.4% pace logged in the first quarter. Economists believe the economy could achieve growth of at least 7% this year. That would be the fastest growth since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

In addition to the supply squeeze, the ebbing boost from government stimulus checks likely restrained consumer spending last month. Transfer payments from the government dropped 11.7%. That resulted in personal income falling 2.0% after declining 13.1% in April.

But there is ample fuel to drive spending. Wages gained 0.8% after rising 1.0% in April. The saving rate fell to a still-lofty 12.4% from 14.5% in April. Households accumulated at least $2.5 trillion in excess savings during the pandemic.

From July through December some households will receive income under the expanded Child Tax Credit program, which will soften the blow of an early termination of government-funded unemployment benefits in 26 states.

(Reporting by Lucia Mutikani; Editing by Paul Simao)