Although household spending accounts for more than two-thirds of economic output in the US and has been a mainstay of the expansion, the consumer can’t support the economy single-handedly.
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The figures support economists’ projections that economic growth will rebound this quarter after the weakest first half since 2011.
That followed an 0.4 percent gain in June, suggesting the consumer side of economic growth was firm at the start of the third quarter.
Consumers upped their savings in July, as the personal saving rate rose to 5.7%, from an upwardly revised 5.5% in June.
Consumer spending rose by 0.3 percent from June, with the gain underpinned mainly by automobile purchases while spending on non-durable goods and services declined.
July’s increase was in line with economists’ expectations.
Last month, there was little sign of inflation even as consumer spending firmed.
Household spending accounts for more than two-thirds of economic output in the US and has been a mainstay of the expansion, especially in recent quarters as business investment has faltered. But economists believe numerous headwinds that have been holding back growth are starting to diminish. Consumer expenditures were a bright spot for the economy during the second quarter, advancing at the fastest rate since late 2014.
The overall economy, as measured by the gross domestic product, grew at an anemic annual rate of 1.1 percent in the April-June quarter, marking a full year in which growth has limped along at an annual rate of 1.2 percent.
Meanwhile, Monday’s report showed scant signs of inflation pressures in the economy.
– Price gauge based on the personal consumption expenditures index – the Fed’s preferred measure – was unchanged from the prior month and was up 0.8 percent from year earlier. From a year earlier, the index was up 0.8%, its smallest annual increase since March.
A key factor keeping the Fed on the sidelines has been ultra-low inflation.
– The core price measure, which excludes food and fuel, rose 1.6 percent for a fifth month on a year-over-year basis. Both readings have been below the Fed’s 2 percent target for inflation for more than four years. The annual rate of core inflation was flat at 1.6%.
Yellen told a gathering of global central bankers last week that “solid performance of the labor market and our outlook for economic activity and inflation” had bolstered the argument for raising interest rates in recent months.
Fed officials will hold a policy meeting September 20-21.
July’s consumer spending data added to reports on the goods trade deficit, industrial production, durable goods orders and residential construction that have pointed to an acceleration in economic growth early in the third quarter.
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– Disposable income, or the money left over after taxes, increased 0.4 percent after adjusting for inflation, the largest gain in 2016.
