U.S. consumer spending unexpectedly fell in July as
savings rose to their highest level in more than 1-1/2 years, indicating that
households remain cautious despite an acceleration in economic growth. The
Commerce Department said on Friday consumer spending dipped 0.1 percent last
month, the first decline since January, after an unrevised 0.4 percent gain in
June.
Economists had expected consumer spending, which accounts
for more than two-thirds of U.S. economic activity, to increase 0.2 percent in
July. When adjusted for inflation, it slipped 0.2 percent after gaining 0.2
percent in June.
The weakness in consumer spending at the start of the third
quarter will probably do little to change perceptions that the economy has
retained much of its second-quarter momentum. Other sectors of the economy such
as housing, business spending, exports and government activity are
accelerating. In addition, labor market conditions are strengthening.
The dollar fell against a basket of currencies after the
data. U.S. stock index futures were trading higher. The government reported on
Thursday that the economy expanded at a 4.2 percent annual pace in the second
quarter, with consumer spending growing at a 2.5 percent pace. Third-quarter
growth estimates currently range as high as a 3.6 percent rate.
Savings increased to $739.1 billion in July, the highest
level since December 2012, from $709.4 billion in June. At 5.7 percent, the
saving rate was also the highest since December 2012. The increase in savings
came even as income posted its smallest increase since December.
While rising savings bode well for future spending,
confidence among households will probably need to increase significantly for
spending to pick up.
With consumption weak, inflation pressures were muted in
July, giving the Federal Reserve room to keep its benchmark overnight lending
rate near zero for some time while it awaits an acceleration in wage growth.
A price index for consumer spending edged up 0.1 percent
after increasing 0.2 percent in June. That was the smallest rise since
February. In the 12 months through July, the personal consumption expenditures
(PCE) price index rose 1.6 percent. It also increased by 1.6 percent in June.
Last month, income increased 0.2 percent after rising 0.5
percent in June. Income at the disposal of households after adjusting for
inflation and taxes nudged up 0.1 percent after increasing 0.3 percent in June.
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