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US consumer spending rises 0.4% in July to 5-month high

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.

Paul Dales, senior U.S. economist at Capital Economics, said that the rise in spending showed “there is still life in American consumers.” But he cautioned that higher gasoline prices and a decline in consumer confidence in August could dampen spending in coming months.

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.

Hiring picked up in July and could see further gains in August. The number of Americans seeking unemployment benefits was unchanged last week at a seasonally adjusted 374,000, the Labor Department said in a separate report Thursday.

Applications are a measure of the pace of layoffs. They have risen slightly over the past three weeks but remain lower than they were in the spring, when hiring nearly stalled. When applications fall consistently below 375,000, it generally suggests that hiring is strong enough to lower the unemployment rate.

That raises hopes for a solid gain when the government releases its August jobs report next Friday.

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.

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.

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In this July 10 photo, shoppers look for merchandise in Boston. 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. (AP)

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