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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.
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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.
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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.
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Consumer spending is important because it accounts for 70 percent
of economic activity.
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Economists said the report was a strong sign that the economy
rebounded in July after anemic growth in the first half of the
year.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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