Consumer Spending Advances for Fourth Consecutive Month
Consumer spending advanced for a fourth straight month in July, bolstered by stronger income gains, sending the biggest part of the U.S. economy to a solid third-quarter start, Commerce Department figures showed Aug. 29 in Washington.
Key Points
• Purchases climbed 0.3% (matching median estimate) after 0.5% rise that was revised up.
• Incomes grew 0.4% (matching median forecast) following 0.3% advance that was also revised up.
• Savings rate increased to 5.7% from 5.5%.
• Disposable income adjusted for inflation climbed 0.4%, the most this year.
Big Picture
The figures support economists’ projections that economic growth will rebound this quarter after the weakest first half since 2011. Adjusted for inflation, an 0.3% advance in July purchases followed an upwardly revised 0.4% gain in the previous month, indicating a better start to the third quarter.
Ian Shepherdson at Pantheon Macroeconomics said in a note to clients that spending this quarter may rise 3% after a robust 4.4% second-quarter surge. A solid August jobs report would further boost expectations for Federal Reserve policymakers to raise interest rates as soon as next month.
Economist Takeaways
“The consumer is going to remain the main driver of growth,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who correctly projected the rise in spending. “Continued improvement in the labor market is supporting income growth. It’s consistent with a solid third quarter.”
The Details
• Disposable income, or the money left over after taxes, increased 0.4% after adjusting for inflation, the largest gain in 2016.
• Price gauge based on the personal consumption expenditures index — the Fed’s preferred measure — was unchanged from the prior month and was up 0.8% from year earlier.
• The core price measure, which excludes food and fuel, rose 1.6% for a fifth month on a year-over-year basis.
• Purchases of durable goods, which include automobiles, increased 1.9% in July after adjusting for inflation, the biggest gain in three months; spending on non-durable goods fell 0.1%, the first drop since February, while outlays on services rose 0.2%.
