Consumer spending rises for fourth straight month as incomes post strong gains
Although the pace of growth slowed, consumer spending posted its fourth straight monthly increase in July, a sign that the economy is poised for a rebound in the second-half of the year.
The Commerce Department reported Monday that personal consumption expenditures were up 0.3% last month, a solid figure that was in line with economists’ expectations.
The spending increase came as incomes posted a strong 0.4% gain in July, the best since April.
With incomes rising at a faster pace than spending, consumers tucked away more money last month. The share of disposable income saved increased 0.2 percentage point to 5.7%.
Consumer spending accounts for about two-thirds of U.S. economic activity and has been showing solid gains after a weak winter plagued by concerns about global growth.
Incomes also have been rising since March, giving consumers more money to spend. Taking into account inflation, disposable personal income jumped last month by the most since December, the Commerce Department said.
The price index for personal consumption expenditures, a key measure of inflation, was unchanged last month.
For the 12 months ended July 31, prices rose just 0.8% — well below the Federal Reserve’s annual 2% target.
Core inflation, which excludes often volatile food and energy costs, increased 1.6% during the same 12-month period. That was the identical pace as for the 12 months ended June 30.
Analysts are expecting economic growth to pick up in the third quarter of the year after a weak first half of 2016. The economy expanded at at just a 1.1% annual pace in the second quarter, after an anemic 0.8% growth rate in the first quarter.
Still, consumer spending was strong in the second quarter, and that was expected to carry over into the second half of the year.
On Friday, Fed Chairwoman Janet L. Yellen said that solid growth in household spending was helping the U.S. economy and that the case for another small increase in a key interest rate had “strengthened in recent months.”
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