Friday, October 24th4.8°C
23888

US consumer spending dips 0.1 per cent in July, first decline since January; income weak

WASHINGTON - U.S. consumer spending fell in July, with a drop in auto purchases accounting for most of the weakness. Income growth also slowed.

Consumer spending edged down 0.1 per cent last month after a 0.4 per cent increase in June, the Commerce Department reported Friday. It was the first decline in spending since January. Income growth slowed to 0.2 per cent in July, the weakest showing in seven months.

The fall in spending came primarily from a decline in auto sales, which took a breather in July after posting big gains in recent months, although spending in other areas was also weak.

Consumer spending accounts for 70 per cent of economic activity, so it needs to recover for the economy to keep its momentum in the second half of the year.

Economists had expected spending would slow in July based on reports of weak retail sales, but they said the slowdown should be temporary given the fact that job growth has been so strong. The combination of rising incomes from more people working and falling gas prices, which will give consumers more to spend on other items, is expected to lift spending in coming months.

Paul Dales, senior U.S. economist at Capital Economics, said he was still forecasting overall economic growth will come close to 3 per cent in the July-September quarter.

The July spending decline reflected a 0.7 per cent drop in purchases of durable goods such as autos and a smaller 0.1 per cent dip in purchases of nondurable goods. Spending on services was flat, which reflected in part less spending on utilities because of cooler-than-normal weather in July.

With a slight income gain and spending declining, the personal saving rate rose to 5.7 per cent of after-tax income in July, up from 5.4 per cent in June. The July saving rate was the highest since it stood at 10.5 per cent in December 2012.

An inflation gauge tied to consumer spending edged up 0.1 per cent in July and was 1.6 per cent higher than 12 months ago. That is still below the Federal Reserve's inflation target of 2 per cent, although it is up from its recent lows of 1 per cent increases year-over-year.

The government reported Thursday that the overall economy grew at an annual rate of 4.2 per cent in the April-June quarter, even faster than the previous estimate. It was a solid rebound after the economy went into reverse in the January-March quarter, shrinking at an annual rate of 2.1 per cent. That setback came in the wake of unusually cold weather that kept shoppers away from the malls, reduced factory production and disrupted other economic activities.

Analysts are hopeful that the momentum that emerged during the second quarter will keep pushing the economy forward in coming months. Many expect growth in the current quarter to come in around 3 per cent, and they believe the economy will expand by around 3 per cent in the fourth quarter as well.

Much of that optimism stems from strong job growth this year. Jobs gains have averaged 244,000 a month since February, the best six-month string in eight years. Those gains have pushed the unemployment rate down to 6.2 per cent.

An improving job market means rising household incomes, greater consumer confidence and thus, more consumer spending.

Financial markets are looking for signs that the Federal Reserve will begin raising interest rates out of concerns over inflation. However, Fed Chair Janet Yellen in remarks last week at an annual conference at Jackson Hole, Wyoming, gave no hint that she is ready to support an increase in the Fed's benchmark short-term interest rate, which has been near zero since December 2008.

Many economists believe the first rate hike will not occur until next summer. Still, some believe that if the job market keeps surpassing expectations, the central bank may see the need to raise rates sooner, possibly as early as next March.

The Canadian Press


Read more Business News

23028


Recent Trending




Today's Market
S&P TSX14543.82+56.99
S&P CDNX805.45-3.15
DJIA16805.41127.51
Nasdaq4483.715+30.923
S&P 5001964.58+13.76
CDN Dollar0.8901-0.0003
Gold1231.20+2.10
Oil81.02-0.73
Lumber336.40+6.80
Natural Gas3.631+0.009

 
Okanagan Companies
Pacific Safety0.105-0.005
Knighthawk0.01-0.005
QHR Technologies Inc1.15-0.02
Cantex0.07+0.015
Anavex Life Sciences0.194-0.004
Metalex Ventures0.045+0.005
Russel Metals33.39+0.23
Copper Mountain Mining2.03-0.05
Colorado Resources0.145+0.005
ReliaBrand Inc0.012-0.001
Sunrise Resources Ltd0.05-0.01
Mission Ready Services0.445+0.035

 



23901

FEATURED Property
2115192#401 - 770 Rutland Road
1 bedrooms 1 baths
$185,000
more details
image2image2image2
Click here to feature your property
Please wait... loading


What I learned in China

Photo: ContributedI will never be an expert on China. It is just too big, too complex and too old with layers of history and meaning that would take several lifetimes to unravel. As I said to my hosts...


We can get on together

I was in LA this week. I witnessed such crazy and unusual circumstances as I strolled along Hollywood Blvd and Sunset Blvd. A far cry from sleepy Peachland in the Okanagan! The strange thing was, I f...


Weakening global growth worries

The Big Picture Growth worries persist Worries about weakening global growth and its potential impact on the US economic recovery roiled markets around the globe this week. Europe continues to be the ...

_








Member of BC Press Council


23091