Personal spending increases more than forecast in July

New York

US personal spending accelerated in July, exceeding forecasts and indicating household consumption remained solid at the start of the third quarter and will continue as the economy's dominant growth engine.

Consumer outlays for goods and services, which account for about 70 per cent of gross domestic product, increased 0.6 per cent during the month after a 0.3 per cent June advance, Commerce Department data showed on Friday. The report also showed incomes rose less than forecast, while the Federal Reserve's preferred inflation gauge remained range-bound.

The data indicate Americans are showing scant signs of reining in their spending despite recent concerns about the prospects of cooler economic growth. A report yesterday showed consumption rambled ahead in the second quarter at the fastest pace since the end of 2014.

The report's inflation figures show prices pressures continue to fall short of the Fed's goal and, in conjunction with the risks to the economy from stumbling overseas economies and an escalation of the US-China trade war, give policy makers reason to keep reducing interest rates.

The broader personal consumption expenditures price gauge rose 0.2 per cent from the prior month and was up 1.4 per cent from a year earlier, matching the median estimates in a Bloomberg survey. The Fed officially targets 2 per cent inflation.

The core PCE price index, which excludes food and energy, increased 1.6 per cent from July of last year, also matching estimates. Policy makers view the core gauge as a better indicator of underlying price trends and have said they're also aiming for it to rise 2 per cent.

After adjusting for the increase in inflation, spending rose 0.4 per cent. 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. Spending on services also picked up.

The Commerce Department's report showed incomes were restrained in July by a 1.8 per cent decline in personal interest income, although wages and salaries settled back as well. Worker pay increased 0.2 per cent after a 0.5 per cent advance a month earlier.

Consumer spending was projected to increase 0.5 per cent from the prior month, while incomes were forecast to climb 0.3 per cent.

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 personal saving rate fell to 7.7 per cent from 8 per cent the prior month.

Adjusted for inflation, disposable income rose 0.1 per cent following a 0.3 per cent gain. BLOOMBERG