The Economy

U.S. Consumer Spending Surges 0.6% in July

“The consumer is still very sturdy and providing fundamental strength to the overall economy,” an economist says.
Matthew HellerSeptember 3, 2019
U.S. Consumer Spending Surges 0.6% in July

U.S. consumer spending continued to drive the economy in July, posting another solid gain, but income growth slowed sharply and inflation remained soft.

The Commerce Department reported Friday that personal-consumption expenditures increased 0.6% last month from June, a pickup from the two previous months. Economists polled by Reuters had forecast consumer spending advancing 0.5% in July.

Consumer spending, buoyed by the strong labor market, has been the main driver of U.S. economic growth amid a global slowdown.

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“The consumer is still very sturdy and providing fundamental strength to the overall economy,” Jack Kleinhaus, chief economist at the National Retail Federation, told The Wall Street Journal. “As long as we see a strong job market … the direction of the economy continues to be on track: positive but slowing.”

But incomes rose just 0.1% in July, marking the smallest gain in nearly a year, while inflation, as measured by the Federal Reserve’s preferred PCE price index rose 0.2%, nudging the yearly rate up to 1.4% from 1.3% — well below the Fed’s 2% target.

“The strong pace of consumption is unlikely to be sustained amid tepid income gains,” Reuters said, noting that “risks to the longest economic expansion in history are mounting, mostly from a year-long trade war between the United States and China.”

A survey from the University of Michigan on Friday showed its consumer sentiment index in August dropping by the most since December 2012 amid uncertainty over trade.

“The recent decline in consumer sentiment could be a sign that the spending data will soften soon,” Daniel Silver, an economist at JPMorgan in New York, told Reuters.

The July gain in consumption reflected increased spending on new cars and trucks. Americans also ate out more and incurred bigger bills for gas and electricity during an especially hot month.

The WSJ said the July report bodes well for third-quarter growth, which economists are projecting at an annual rate of 2.2% to 2.3%. But the Fed is expected to lower interest rates again next month as a hedge against possible damage to the economy from the U.S.-China trade conflict.