US consumer spending increases 0.3 percent in July

As consumer spending, personal income, and wages and salaries increase, the US economy is set for a good third quarter, economists say.

The US economy appears strong as data shows consumer spending increased in July.

Spending among American consumers increased 0.3 percent last month, according to A Commerce Department report released Friday. The 0.3 percent increase is below economists’ predictions of a 0.4 percent jump for July, but followed closely behind the revision of June data up to a 0.3 percent increase. The back-to-back months of gains bodes well for the US economy. 

Consumer spending constitutes more than two-thirds of economic activity in the US. An increase shows upward momentum and displays the strength necessary to shrug off recent trouble in the Chinese market, experts say.

The good news arrived at just the right time, following a tumultuous week for the US stock market. As concerns over China’s economy created market fluctuations, the US stock market was sent into correction. The Dow and Nasdaq only just recovered from correction territory on Thursday.

The 0.3 percent increase will likely impact decisions to be made by the Federal Reserve. The Fed looked favorably toward a September interest rate hike before the market collapse. Following the collapse, William Dudley, president of the New York Federal Reserve, said in a press briefing that factors were not as favorable for a September hike as they had been, but “could become more compelling… as we get additional information on how the US economy is performing….” The July 0.3 percent increase could be that information.

The consumer spending increase can be attributed primarily to spending on durable goods. In June, the category dropped 1.1 percent but was reversed in July with around a 1.1 percent increase. About half the gain came from the automotive industry and an increased demand for automotive vehicles and parts. Spending on non-lasting goods rose only .1 percent.

The increase in consumer spending is accompanied by an increase in personal income and wages and salaries.

Personal income grew 0.4 percent in a July, and wage and salary gains arrived at 0.5 percent. The income increase was predictable, as it has increased the last four months; however, the wage and salary increase last month was the largest since November 2014. As income growth increased, the savings rate also rose 0.2 percent to 4.9 percent.

Prices also went up in July, a slight 0.1 percent. Food prices went up 0.2 percent, and  with electricity costs edged up, with a 0.1 percent rise in energy prices. Even with price increases, the outcome is still good for consumers.

IHS Global Insight Economist Chris Christopher noted in his analysis: “The real consumer spending outlook for the remainder of the year looks relatively bright, supported by improved job prospects, solid gains in real disposable income and household real estate assets, and a housing market that is gaining traction.”