Spending inches up 0.1% in tandem with small increase in incomes
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — Americans barely increased spending in July, suggesting the U.S. economy got off to a slow start in the third quarter.
Consumer spending edged up 0.1% last month on a seasonally adjusted basis, the Commerce Department said Friday. Economists polled by MarketWatch had forecast a 0.3% advance.
The increase in spending matched the growth in personal income, which also rose a scant 0.1% in July. Since incomes and spending increased at the same clip, the personal savings rate held steady at 4.4%.
Unless spending picks up in August and September, the economy could show somewhat slower growth in the third quarter. Economists had been forecasting the U.S. to expand around 2.5%, matching the pace of growth in the second quarter.
Consumers account for more than two-thirds of U.S. economic activity. When Americans buy more goods and services, businesses generate higher sales and profits and can afford to hire extra workers. That puts more money into the economy and further boosts spending and growth.
The slow increase in inflation-adjusted household incomes, however, has been holding the economy back. The U.S. cannot grow much faster than 2% or so in the longer run if wages continue to rise at about the same pace.
After taxes, disposable income adjusted for inflation rose just 0.1% in July.
Inflation as gauged by the PCE price index also increased a scant 0.1%. The closely followed core rate, which excludes food and energy, also rose 0.1% in another sign that inflation remains muted.
Over the past year, the PCE index has risen 1.4%, well below the Federal Reserve’s preferred 2%-to-2.5% range for inflation. The core rate has moved up an even smaller 1.2%
In June, the increase in spending was revised up a tick to 0.6%, based on new information collected by the government.
Jeffry Bartash is a reporter for MarketWatch in Washington.
