US consumer spending firm, inflation slows in July

[WASHINGTON] US consumers spent at a solid pace in July while the key PCE index of inflation slowed, the Commerce Department reported Monday.

Consumer spending rose by 0.3 per cent from June, with the gain underpinned mainly by automobile purchases while spending on non-durable goods and services declined.

That followed an 0.4 per cent gain in June, suggesting the consumer side of economic growth was firm at the start of the third quarter.

The spending gain was underpinned by an 0.4 per cent rise in personal income in July, solid for the month but year-on-year up a more modest 2.7 per cent.

Inflation was still weak. The personal consumption expenditures price index was flat for the month and up 0.8 per cent year-on-year, slower than a month before.

With volatile food and fuel stripped out, PCE inflation - the Federal Reserve's preferred measure of price pressures - was up 0.1 per cent in the month and 1.6 per cent from a year ago, still well below the Fed's 2.0 per cent target level.

The spending and income data pointed to a firm rebound in US economic growth in the third quarter, said Ian Shepherdson of Pantheon Macroeconomics.

"Real consumption is set to make a substantial positive contribution to Q3 GDP," he said in a client note.

After the slow 1.1 per cent pace of the second quarter, gross domestic product could expand by a 3.0 per cent annual pace in the third, he predicted.

AFP