Consumer Spending Up 0.8% in July
U.S. consumer spending in July rose the most since January and a measure of inflation increased less than estimated, according to government reports released Thursday, suggesting a prolonged economic expansion that will let the Federal Reserve keep interest rates steady through year-end.
Personal spending climbed 0.8% after a 0.4% gain in June, the Commerce Department said. The price gauge tied to spending and excluding food and energy rose 0.1%. Two more reports signaled continued growth in manufacturing.
The figures reinforce Fed economists’ forecasts that growth will slow without stalling and inflation will ease. Gains in income are keeping consumers spending, offsetting the effect of higher gasoline prices and a housing downturn.
“At a time when so many people are expecting the consumer to collapse, that’s just not happening,” said Mickey Levy, chief economist at Bank of America Corp. in New York.
The inflation figure “buys the Fed some breathing room,” said Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein in New York. “It buys them some time to hold rates steady.”
The Commerce Department report also showed incomes rose 0.5% in July after a 0.6% increase the previous month. Incomes were up 7.1% from a year earlier.
Manufacturing numbers further diminished speculation that the economy is quickly weakening. Factory orders, excluding transportation equipment, rose 1.1% in July, the Commerce Department said. The National Assn. of Purchasing Management-Chicago said a regional index slipped to 57.1 in August from 57.9 in July. A reading above 50 indicates growth.
“Fears of an economic slowdown are overblown,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi in New York. “All eyes are going to be on the labor market” and this morning’s jobs report from the Labor Department.
That is expected to show that job creation picked up in August. Employers probably added 125,000 workers, the most in five months, according to a Bloomberg survey of economists.
The Labor Department said Thursday that the number of people filing first-time applications for state jobless benefits fell by 2,000 last week to 316,000.
Because the personal spending increase was larger than the gain in incomes, the savings rate fell to minus 0.9% from minus 0.7% in June. The rate has been negative for 16 months, indicating that consumers are dipping into their savings to maintain spending.
Disposable income, or the money left over after taxes, increased 0.7% in July, the most since January, after a 0.5% rise the previous month. It was up 6% in the last 12 months.
Taking into account changes in prices, July spending rose 0.5%, the most this year.
Inflation-adjusted spending on durable goods, such as cars, furniture and other long-lasting items, jumped 1.6%, the most since January, after rising 1%. Purchases of nondurable goods rose 0.4% after rising 0.2%. Spending on services, which account for almost 60% of outlays, increased 0.4% after rising 0.1%.
