Consumer spending rises, encouraging analysts

WASHINGTON – U.S. consumers increased their spending moderately in July, as wages and salaries made their biggest jump in eight months.

Spending rose 0.3 percent in July, helped by purchases of big-ticket items such as cars, the Commerce Department reported Friday. June’s result was revised up to a matching 0.3 percent gain.

Incomes increased 0.4 percent in July. The key category of wages and salaries rose 0.5 percent, the biggest advance since last November.

The report suggests consumer spending, which accounts for 70 percent of economic activity, got off to a good start in the third quarter as strong momentum from the second quarter rolled into July.

Economists, who believe the economy will be fueled in the second half of this year by solid income and spending gains, were encouraged by the July results.

“All of the data are heading in the right direction,” said Jennifer Lee, senior economist at BMO Capital Markets in a note to clients. “Except for inflation.”

A key price gauge tied to consumer spending that is closely watched by the Federal Reserve posted a tiny 0.1 percent increase in July. Over the past 12 months, the figure is up just 0.3 percent, reflecting the big plunge in energy prices over the past year.

Excluding volatile energy and food, prices are up just 1.2 percent over the past 12 months, far below the Fed’s goal of having prices rise at an annual rate of 2 percent.

Economists believe that growth will remain solid in the current July-September period.

Analysts expect spending will be supported by further strong gains in employment. The jobless rate in July was at a seven-year low of 5.3 percent. With more people working, that supports continued gains in consumer spending.