Rise in consumer spending sparks optimism across US
Latest buoyant figures ease fears of slip into 'double dip' recession
Consumer spending in the US rose more than forecast in July, exceeding gains in incomes and indicating that the economy may avoid slipping back into a recession.
Purchases rose 0.4pc, the most since March, after little change the previous month, Commerce Department figures showed yesterday in Washington. Incomes climbed 0.2pc, less than projected, and the savings rate dropped.
Disposable incomes, or the money left over after taxes, dropped for the first time since January after adjusting for inflation, showing how the lack of jobs may prevent spending from strengthening. Companies from Intel to J Crew Group are cutting forecasts as unemployment and flagging confidence prompt households to scale back.
"It'll be a real slog," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.
"We'll see very slow growth, but it's a far cry from a double dip," he said, referring to the economy lapsing into another economic slump.
Concern over the shortfall in incomes sent stocks lower, and Treasury securities climbed. The Standard & Poor's 500 Index fell 0.5pc to 1,059.63 in New York. The yield on the benchmark 10-year Treasury note fell to 2.54pc from 2.65pc late last week.
The median estimate of economists surveyed by Bloomberg News called for a 0.3pc advance in spending. The 71 projections ranged from unchanged to an increase of 0.5pc. Economists forecast that incomes would also rise 0.3pc, following no change in June, according to the survey.
Wages and salaries increased 0.3pc, propelled by a longer work week. Inflation-adjusted incomes after taxes fell 0.1pc last month after a 0.1pc June increase, and the savings rate dropped to 5.9pc from 6.2pc.
Yesterday's report also showed that inflation accelerated. The price gauge tied to spending patterns increased 1.5pc from July 2009, compared with a 1.4pc gain in the 12 months ended in June.
Cars sold at an 11.6 million pace last month, up from an 11.2 million rate in June, according to industry figures.
The gain extended a see-saw pattern over the past four months that shows demand is stagnating.
Fed chairman Ben Bernanke last week said the central bank would "do all that it can" to ensure a continuation of the economic recovery, and outlined steps it might take if growth slows.
"Consumer spending may continue to grow relatively slowly in the near term," he said last Friday at the Kansas City Fed's annual monetary policy symposium in Jackson Hole, Wyoming.
The US economy expanded at a 1.6pc annual rate in the second quarter, according to revised figures from the Commerce Department released last Friday. Corporate profits grew at the slowest rate in a year, employee wages were revised lower and consumer spending rose at a 2pc annual rate.
Economists have reduced their forecasts for third-quarter growth over recent weeks as reports showed business spending weakening and home sales continuing to slide. (Bloomberg)