Consumer spending rises at quickest pace in months

by Associated Press

Published: August 30,2010

Tags: consumer spending, economy

WASHINGTON — Americans spent last month at the fastest pace in four months, helped by a jump in demand for automobiles.

Consumer spending rose 0.4 percent in July after three lackluster months, the Commerce Department said today. Spending fell 0.1 percent in April, rose a tiny 0.1 percent in May and was flat in June.

Personal incomes were up 0.2 percent in July, less than expected but at least an improvement over June when incomes had not risen at all.

The July spending gain was the highest since a 0.5 percent rise in March. But the concern is that demand could taper off in the second half of this year if unemployment remains near double digits.

If Americans don’t have jobs, they don’t have the income to support spending. Consumer spending is critical because it accounts for 70 percent of economic activity.

With spending rising, the personal savings rate slowed to 5.9 percent of after-tax income. That’s down from 6.2 percent in June, the highest in nearly a year. Even with the July decline, the savings rate is nearly three times higher than it was before the recession began in Dec. 2007.

Economists had long worried about low savings in the United States. But now they fear households have become too frugal and that is holding back consumer spending.

The gain in spending reflected a 1 percent jump in demand for durable goods. About half of that increase came from a jump in auto sales, the government said.

Economists had expected a rebound in spending for July. An earlier government report showed that retail sales rose during the month for the first time in three months.

Still, the economy is growing too slowly to support sustained job growth and some fear it could fall back into a recession. Economic growth slowed to 1.6 percent in the April-to-June quarter, the government reported Friday. That was revised down from the initial estimate of 2.4 percent.

A string of weak economic reports in recent weeks has prompted economists to trim their growth forecasts for the rest of the year and next.

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