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Consumer spending rose 0.4 percent in July

Updated: August 30, 2012 3:24PM



WASHINGTON — Americans spent at the fastest pace in five months in July after earning a little more. The increase in income and consumer spending could help boost an economy mired in subpar growth.

Consumer spending rose 0.4 percent in July from June, the Commerce Department said Thursday. That followed no change in June and a slight decline in May.

Income grew 0.3 percent, matching the gains from May and June. Americans also earned 0.3 percent more after paying taxes.

The savings rate after taxes dipped to 4.2 percent. That’s down slightly from 4.3 percent in June, a level which had been the highest in a year. Economists believe Americans began saving more in part because of concerns triggered by a sharp slowdown in job growth earlier this year.

Consumer spending is closely watched because it accounts for 70 percent of economic activity. The economy grew at a tepid annual rate of 1.7 percent in the April-June quarter, the government said Wednesday.

Many economists expect growth will hover around 2 percent in the second half of the year. Growth at that level is far below what is needed to rapidly lower the unemployment rate, which ticked up to 8.3 percent in July.

Slow growth could prompt the Federal Reserve to take further steps to boost the economy when policymakers meet again on Sept. 12-13. In late July, Fed policymakers spoke with increased urgency about the need to provide more help for a weak U.S. economy.

Chairman Ben Bernanke could offer some clues Friday to what the Fed might announce when he speaks at a Fed conference in Jackson Hole, Wyo. Some suspect the Fed will wait to see how the economy performed in August, especially after July’s data was better than expected.

Inflation has been tame, which could provide the Fed more leeway to act.

Consumers paid no more their purchases in July than June, the report showed. Excluding food and energy, prices over the past year are up just 1.6 percent, well below the Federal Reserve’s 2 percent target for inflation.

Employers created 163,000 jobs in July, the most since February. Consumers stepped up retail spending, factories produced more goods and the housing recovery continued with increases in both new and previously occupied homes.

In its latest survey of business conditions around the country, the Federal Reserve reported Wednesday that the U.S. economy grew moderately in July and early August with stronger retail sales helping to offset weakness in manufacturing.



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