MW: Spending climbs 0.8% in July as savings rate dips
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — Americans spent more money than they took in July — largely on auto purchases — as the personal savings rate fell, the government reported Monday.
The income of U.S. workers rose 0.3% in July, but spending increased an even faster 0.8%, the Commerce Department said.
Adjusted for inflation, personal consumption rose 0.5% last month.
Since spending rose more than income, the individual savings in July rate dropped to 5.0% from 5.5% of disposable income.
Adjusted for inflation, disposal income actually fell 0.1% to mark the first decline in 10 months. Disposable income is the money people have leftover after paying for food, fuel, housing costs and other necessities.
Inflation, meanwhile, rose 0.4% based on the latest reading from the personal consumption expenditure price index. The index has increased 2.8% over the past 12 months, pressured by rising gas prices.
The core PCE, which excludes volatile food and energy costs, rose a lesser 0.2%. The core index is closely watched by central bankers and economists to gauge inflationary trends.
Over the past year, core PCE inflation has risen a smaller 1.6%.
Economists surveyed by MarketWatch had forecast a 0.4% increase in personal income and a 0.6% rise in consumer spending. The core PCE index was expected to rise 0.2%.
Consumer spending is by far the bigger source of U.S. growth, but people have been reluctant to spend because of persistent weakness in the economy. The jobless rate remains high at 9.1% and many companies area hesitant to hire, prompting consumers to save more and whittle down their debts.
The result is a classic chicken-and-egg scenario. Consumers won’t sharply increase spending until the economy improves and more jobs become available, but companies won’t hire lots of new workers until the economy improves and consumers spend more.
The increase in spending in July, mainly on autos, might not be sustainable. Customers took advantage of good deals and the availability of new models after a recent shortage.
The government also revised consumer spending in June to an increase of 0.2% from an original reading of 0.1%. Personal spending fell 0.1% instead of 0.2%.
