Consumer spending remains strong in July

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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 Monday in Washington.

Key Points:

• Purchases climbed 0.3 percent (matching median estimate) after 0.5 percent rise that was revised up.

• Incomes grew 0.4 percent (matching median forecast) following 0.3 percent advance that was also revised up.

• Saving rate increased to 5.7 percent from 5.5 percent.

• Disposable income adjusted for inflation climbed 0.4 percent, the most this year.

The figures support economists' projections that economic growth will rebound this quarter after the weakest first half since 2011. Adjusted for inflation, a 0.3 percent advance in July purchases followed an upwardly revised 0.4 percent 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 percent after a robust 4.4 percent second-quarter surge. A solid August jobs report would further boost expectations for Federal Reserve policy makers to raise interest rates as soon as next month.

Main driver of growth

"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 percent 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 percent from year earlier.

• The core price measure, which excludes food and fuel, rose 1.6 percent for a fifth month on a year-over-year basis.

• Purchases of durable goods, which include automobiles, increased 1.9 percent in July after adjusting for inflation, the biggest gain in three months; spending on non-durable goods fell 0.1 percent, the first drop since February, while outlays on services rose 0.2 percent.

According to Reuters, July's strong performance could set the stage for the Federal Reserve to raise interest rates later this year.

The report came after Federal Reserve Chair Janet Yellin said on Friday that the improving economic conditions had strenghtend the case for raising rates.

Consumer spending accounts for two-thirds of the country's economic activity. Strong Demand for motor vehicles led July's resurgence in consumer spending.

The Atlanta Fed is currentlyu estimating the economy to grow at 3.5 percent in the third quarter, according to Reuters.


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