Spending edges up in July, incomes flat

Washington, D.C. The Commerce Department said Friday that consumer spending edged up in July with help from the Cash for Clunkers program, but household incomes were flat.

Consumer spending, which will be the major determiner for assessing when the economy will emerge from the recession, rose 0.2% in July, matching economists’ expectations. Personal incomes were unchanged, however, not meeting the expected 0.2% gain.

With incomes flat in July as spending rose, the personal-savings rate dipped slightly to 4.2% from 4.5% in June. The savings rate was 2.6% a year ago.

Economists expect the savings rate to rise in coming months to about 6% as workers try to rebuild savings.

The modest rise in spending last month followed a 0.6% jump in June, a gain driven by a surge in gasoline prices. Adjusting for inflation, spending rose 0.2% in July and 0.1% in June.

The slight rise in spending reflected a 1.3% jump in purchases of durable goods such as cars, a gain propelled by the clunkers program that started at the end of July. Purchases of nondurable goods such as clothing actually fell 0.3% last month.

Economists fear that consumer spending, which accounts for 70% of economic activity, may not be strong enough to propel a sustained recovery from the longest recession since World War II.

Many economists believe GDP in the current July-September quarter will rebound to growth above 3.0% and remain at that level in the fourth quarter.

But concerns that economic growth will slip back in the early part of 2010 remain, as the impact of the government programs fade and unemployment rises. The 9.4% jobless rate in July is expected to edge up to 9.5% in August and keep rising until it tops 10%.

That will be a tough environment to see strong gains in consumer spending, say economists.