US consumer spending up in July as wages grew

[WASHINGTON] Consumer purchases climbed in July as incomes grew, showing the biggest part of the US economy was off to a good start to the quarter.

The 0.3 per cent advance matched the prior month's gain, a Commerce Department report showed on Friday in Washington. The median forecast in a Bloomberg survey of 77 economists called for a 0.4 per cent increase. Wages rose by the most this year.

Coming on the heels of data showing spending and the overall economy did better than previously estimated in the second quarter, the figures indicate the momentum carried over into the second half of the year. Steady hiring, cheap gasoline, rising home-equity and low borrowing costs are underpinning demand and helping shield the US from global weakness.

"Consumers have more than enough ammunition from the labor market to continue to spend," Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York, said before the report. "Income growth is very constructive." Projections for spending ranged from gains of 0.2 per cent to 0.6 per cent. The previous month's reading was revised up from an initially reported 0.2 per cent advance.

Total incomes rose 0.4 per cent in July for a fourth month, matching the median forecast in the Bloomberg survey. Wages and salaries increased 0.5 per cent, the biggest gain since November.

Because spending increased less than incomes, the saving rate rose to 4.9 percent from 4.7 per cent.

The report also showed that adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases rose 0.2 per cent after being little changed the previous month.

Economic growth accelerated to a 3.7 per cent annualized rate in the second quarter, revised up from a previously reported 2.3 per cent pace and following a 0.6 per cent gain in the first quarter, according to Commerce Department data released Thursday. The 3.1 per cent jump in household purchases also was more than the prior estimate.

Details of the July spending and income report showed durable goods purchases, including automobiles, jumped 1.3 per cent after adjusting for inflation, with about half the gain coming from demand for autos and parts. That followed a 0.9 per cent drop. Spending on non-durable goods, which include gasoline, rose 0.1 percent.

Household outlays on services also rose 0.1 per cent after adjusting for inflation. The category, which includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately.

The report showed inflation remained tame. The price gauge based on the personal consumption expenditures index increased 0.1 per cent from the prior month and was up 0.3 per cent from a year earlier.

The core price measure, which excludes food and fuel, also rose 0.1 per cent from the prior month and was up 1.2 per cent from July 2014, the smallest year-to-year gain in four years.

Inflation hasn't reached the Fed's 2 per cent goal since April 2012.

Consumers are getting a boost from an improving job market. Payrolls climbed by 215,000 and the unemployment rate was at a seven-year low of 5.3 percent in July.

Gasoline prices have fallen almost 30 cents a gallon since this year's high of $2.80 reached in the middle of June, data from auto group AAA showed.

Fed policy makers, considering raising the benchmark interest rate for the first time since 2006, are watching the global stock-market turmoil.

While recent stock-market gyrations may trim household wealth, cheaper fuel and steady hiring will provide some offset, economists have said. That will help cushion the economy from slowing overseas sales and financial turbulence worldwide, they predicted.

BLOOMBERG