Optimistic US consumers boost spending 0.6% in July

Optimistic US consumers boost spending 0.6% in July”

The reading was in line with forecasts by economists surveyed by The Wall Street Journal, who had expected the so-called core index to rise 0.2% on the month and 1.6% on the year. With spending ahead of incomes, the savings rate fell to 7.7%, the lowest since last November, but still a solid figure by historical standards. The report added to trade and inventory data in suggesting that while the economy was slowing, the trajectory of the declines were slow.

The Commerce Department reported Friday that personal-consumption expenditures increased 0.6% last month from June, a pickup from the two previous months. Consumer confidence was high in August, according to the Conference Board, a business research group, and Americans' assessment of the current state of the economy was the most positive it has been in almost 19 years. The economy is largely losing speed as the stimulus from the White House's $1.5 trillion tax-cut packages and a government spending blitz fades.

When adjusted for inflation, consumer spending increased 0.4 per cent in July. The US-China trade conflict has weighed heavily on manufacturing and business investment, which contracted in the second quarter.

Low inflation, along with worries about slowing economic growth, was among the reasons Fed officials voted July 31 to lower interest rates by a quarter-percentage point.

The core PCE price index, which excludes food and energy, increased 1.6% from July of past year, also matching estimates. Why it has lingered below 2% is a somewhat of a mystery, though recent research has showed a wide array of prices don't appear to respond to cyclical factors in the economy.

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Forecasts in Bloomberg surveys had called for the broader PCE price measure to rise 1.4 per cent from a year earlier and for the core measure to advance 1.6 per cent.

The WSJ said the July report bodes well for third-quarter growth, which economists are projecting at an annual rate of 2.2% to 2.3%.

"While the shorter-term trend in core prices has picked up, the low yearly rate, along with the recent escalation in trade protectionism, can only spur the Fed to pull the easing trigger again on September 18", said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. The July gain was driven by a 0.8 per cent increase in outlays for merchandise, the largest advance in four months, according to the report. This so-called real consumer spending rose 0.2 per cent in June. Household spending was the principal driver of growth in the April-June quarter, when spending increased by the most in five years. That followed a 0.5 per cent increase in June.

Wages increased 0.2% and personal interest income fell 1.8%.

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