The Economy

Consumer Spending Up for 4th Straight Month

Another strong month for personal consumption boosts hopes that economic growth will rebound from the anemic second quarter.
Matthew HellerAugust 30, 2016

U.S. consumer spending maintained its momentum in July, fueling expectations that economic growth will pick up in the third quarter.

The Commerce Department said personal consumption rose a seasonally adjusted 0.3% in July from a month earlier, marking the fourth straight monthly increase. Incomes rose 0.4%, a pickup from growth in the previous two months.

Spending on motor vehicles and services in July partially offset lower spending on nondurable goods, or items not intended to last more than three years.

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The spending report came as other recent data on the goods trade deficit, industrial production, durable goods orders, residential construction have suggested economic growth is accelerating in the current quarter. GDP grew at an anemic 1.1% annual rate in the second quarter.

“Economists are counting on solid gains in consumer spending, which accounts for 70% of economic activity, to power overall growth in the second half of the year,” the Associated Press reported.

Reuters said the July report could support the case for another interest rate hike this year but continuing low inflation suggests the U.S. Federal Reserve could defer an increase until its December policy meeting.

According to the Commerce Department, the personal consumption expenditures price index, excluding the volatile food and energy components, edged up only 0.1% in July after a similar gain in June. In the 12 months through July, the core PCE, the Fed’s preferred inflation measure, rose 1.6%, below the central bank’s 2% target.

“Services inflation will continue to be firm, but some of its strength will likely be offset by the other components of the PCE basket, leading overall inflation to increase at a moderate pace,” Blerina Uruci, an economist at Barclays, said.

The strength in consumer spending has reflected steady job gains and low interest rates and gasoline prices. But it has been offset by weak business investment and a sharp inventory drop.

“The consumer can’t support the economy single-handedly,” The Wall Street Journal noted. “Economists are looking to companies to boost their spending on the kinds of equipment and software that increase productivity and growth.”

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