Consumer Spending Up Sharply

U.S. consumer spending rebounded sharply in July, the government said Monday, erasing the disappointment of June and bolstering hopes that the U.S. economy had recovered from its recent soft spot.

Personal spending rose 0.8%, more than making up for a revised 0.2% fall in June, the Commerce Department said.

The improvement in reported consumption was substantial because June’s spending initially had been reported as down 0.7%.

But personal income advanced at a more modest pace than expected, posting a 0.1% rise compared with a 0.2% gain the previous month. July’s advance was the weakest reading since November 2002.

Analysts polled by Reuters had forecast consumption to rise 0.7% and income to gain 0.5% after strong retail and car sales last month indicated that consumers had overcome their hesitancy of June.

The tepid improvement in incomes made economists wonder about spending in the future.

“Consumers are spending, but we really do need some better job growth to keep income growing at a pace that will keep the economy going,” Joel Naroff at Naroff Economic Advisors wrote in a note to clients.

Stripping out the effects of inflation and taxes, disposable income rose 0.1%, the Commerce Department said.

In striking evidence that U.S. inflation is well under control, both the price index for consumer purchases and core prices, one of the Federal Reserve’s favorite measures of inflation, were unchanged last month. Core prices were up just 1.5% from the same period last year.

“The inflation data look good. There is no inflation acceleration,” said Robert Brusca, chief economist at Fact and Opinion Economics.

Spending on durable goods, which include costly items such as cars, jumped 4.1%, erasing June’s revised 3.2% drop. This initially had been reported as a 5.9% fall.

Nondurable goods spending advanced 0.2% and June’s previously reported 0.3% decline was revised to show a 0.2% rise.

A rebound in spending had been heralded by a pickup in both car and retail sales in July. Analysts see this as laying the foundation for higher growth in the second half of the year after the economy hit a rut between April and June.

Second-quarter gross domestic product growth shrank to 2.8% from 4.5% in the previous three months after soaring oil prices dented household incomes and took the shine off shopping.