WASHINGTON – Shoppers spent more freely in July, raising hopes that June’s economic lull could be coming to an end.
The Commerce Department reported Monday that consumers, key shapers of U.S. economic activity, boosted spending by 0.8 percent in July from the previous month. Their appetite to spend was led by a rebound in demand for big-ticket goods, such as cars, helped by buyers’ incentives.
The latest snapshot of buyer behavior marked an improvement from June, when consumers cut spending by 0.2 percent. High energy prices and a sluggish job market weighed on consumers’ willingness to spend; it was part of what Federal Reserve Chairman Alan Greenspan had described as a “soft patch” the economy hit in June.
Incentives on cars and discounting of other goods helped to bring buyers back in July. “Consumers know a deal when they see one and know when to wait for one to show up,” said Joel Naroff, president of Naroff Economic Advisors.
Americans’ incomes, the fuel for future growth, nudged up 0.1 percent in July, following a 0.2 percent rise in the previous month. July’s income growth fell short of some analysts’ calls for a 0.5 percent gain.
Income growth was held back by a decline in government payments – mainly a reduction in the federal matching rate for Medicaid reimbursements, which had been boosted by last year’s tax cuts. Wages and salaries, unchanged in June, rose by 0.4 percent in July.
The economy grew at a 2.8 percent annual rate in the April-to-June quarter of this year as high energy prices took a toll on economic activity.
That was more sluggish than first thought, marked a slowdown from the 4.5 percent growth rate in the prior quarter, and provided fresh evidence that the economy had a rough go in the early spring and late summer.
Economists believe, however, that the economy is picking up its pace in the July-to-September quarter, with estimates for growth ranging from a rate of around 3 percent to just topping a 4 percent pace.
The Federal Reserve, hopeful that economic activity would strengthen in coming months, boosted short-term interest rates for a second time this year on Aug. 10 in an effort to ensure that inflation does not become a problem for the economy. The action left a key rate controlled by the Fed at 1.5 percent.
Analysts also are hoping the jobs climate will get better. The economy added just 32,000 positions in July. Economists forecast a gain of around 150,000 jobs for August, for which figures will be released Friday.
Consumer spending on durable goods, such as cars, rose 4.1 percent, compared with a 3.2 percent drop in June. Spending on nondurables, such as food, increased 0.2 percent for a second straight month. Spending on services rose 0.4 percent in July, up from a 0.3 percent gain.
Consumer spending accounts for roughly two-thirds of economic activity in the United States – hence its important role in shaping the economy.
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