Consumer spending grows in July after brief dip
WASHINGTON (AP) — Consumer spending grew in July by 0.8 percent, the largest amount in five months. That followed a decline in June and helped ease fears that the U.S. economy is on the verge of another recession.
Personal incomes increased 0.3 percent last month, the Commerce Department said. That's slightly higher than the modest 0.2 percent in June, the weakest growth in seven months.
The first look at spending in the second half of the year gave Wall Street an early lift. Stock futures rose after its release. It added to positive reports that Hurricane Irene didn't do as much damage as feared.
Consumer spending is important because it accounts for 70 percent of economic activity.
Economists said the report was a strong sign that the economy rebounded in July after anemic growth in the first half of the year.
July's spending and income figures "significantly alter the outlook for third-quarter GDP growth," said Paul Dales, a senior U.S. economist for Capital Economics. Dales said growth for the July-September quarter is on track for an annual rate of 2.5 percent, up from his previous estimate of 1.5 percent.
The government on Friday lowered its growth estimate for the April-June quarter to an annual rate of just 1 percent. Through the first six months of the year, the economy grew just 0.7 percent — the weakest in the two years since the recession official ended.
A number of reports show the economy improved last month. The economy added 117,000 net jobs in July, twice the number added in each of the previous two months. Spending on retail goods rose faster last month than in any month since March. U.S. automakers rebounded last month to boost factory production by the most since the Japan crisis.
In July, consumer spending rose at a faster pace than income. That means Americans saved less. The savings rate fell to a four-month low of 5 percent, down from 5.5 percent in June.
The increase in spending was led by a 1.9 percent jump in purchases of durable goods, products such as autos and appliances that are expected to last at least three years. Spending on non-durable goods rose 0.7 percent. However, the purchase of services, the biggest spending category, fell 0.7 percent. Services include everything from haircuts to airline tickets.
In a speech Friday, Federal Reserve Chairman Ben Bernanke proposed no new steps to boost the economy. But he did say the Fed would expand its September meeting to two days to allow a fuller discussion.
Investors hope the Fed will announce another round of Treasury purchases after that meeting. But economists said interest rates are already so low that there is little more the Fed can do to boost the economy.