US consumer spending rises in July; inflation muted

Wages and salaries shot up 0.5 percent, the largest rise since November 2014, after advancing 0.2 percent in June.
Wages and salaries shot up 0.5 percent, the largest rise since November 2014, after advancing 0.2 percent in June.PHOTO: BLOOMBERG

WASHINGTON (REUTERS) - US consumer spending picked up a bit in July as households bought more automobiles, offering further evidence of strength in the economy that could keep the door open to a Federal Reserve interest rate hike this year.

The Commerce Department said on Friday consumer spending increased 0.3 per cent after an upwardly revised 0.3 per cent rise in June. Consumer spending, which accounts for more than two-thirds of US economic activity, was previously reported to have gained 0.2 per cent in June.

Economists polled by Reuters had forecast consumer spending rising 0.4 per cent last month.

It was the latest report indicating momentum in the economy as it confronted recent global financial markets turbulence, sparked by concerns over a slowing Chinese economy, which has diminished the chances of an interest rate increase next month.

Economists say that underlying strength, also highlighted by a rebound in business spending, buoyant housing and labor markets, as well as bullish consumer confidence, gives the economy muscle to weather the fallout from the markets rout.

The fairly upbeat consumer spending report also suggested the economy maintained some of its vigour from the second quarter, when it expanded at a 3.7 per cent annual rate.

Last month, spending on long-lasting goods such as automobiles increased 1.1 per cent, reversing June's 1.1 per cent drop. Auto purchases accounted for about half of the increase. Outlays on services like utilities rose 0.2 per cent.

When adjusted for inflation, consumer spending rose 0.2 per cent after being flat in June.

Personal income increased 0.4 per cent in July, rising by the same margin for a fourth straight month. Wages and salaries shot up 0.5 per cent, the largest rise since November 2014, after advancing 0.2 per cent in June.

With income gains outpacing spending, the saving rate increased to 4.9 per cent from 4.7 per cent in June.

Despite the steady increase in consumption, inflation remained muted. Inflation, which has persistently run below the Fed's 2 per cent target, dominated the discussions at the Fed's July 28-29 policy meeting.

A price index for consumer spending rose 0.1 per cent, slowing from a 0.2 per cent increase the prior month. In the 12 months through July, the personal consumption expenditures (PCE) price index rose 0.3 per cent for a second straight month.

Excluding food and energy, prices edged up 0.1 per cent for the fourth straight month. The so-called core PCE price index rose 1.2 per cent in the 12 months through July, the smallest rise since March 2011. It increased 1.3 per cent in June.