U.S. personal spending accelerated in July, exceeding forecasts and indicating household consumption remained solid at the start of the third quarter and will continue as the economy’s dominant growth engine.
Consumer outlays for goods and services, which account for about 70% of gross domestic product, increased 0.6% during the month after a 0.3% June advance, Commerce Department data showed Friday. The report also showed incomes rose less than forecast, while the Federal Reserve’s preferred inflation gauge remained range bound.
The data indicate Americans are showing scant signs of reining in their spending despite recent concerns about the prospects of cooler economic growth. A report Thursday showed consumption rambled ahead in the second quarter at the fastest pace since the end of 2014.
The report’s inflation figures show price pressures continue to fall short of the Fed’s goal. That data, in conjunction with the risks to the economy from stumbling overseas economies and an escalation of the U.S.-China trade war, give policy makers reason to keep reducing interest rates.
The broader personal consumption expenditures price gauge rose 0.2% from the prior month and was up 1.4% from a year earlier, matching the median estimates in a Bloomberg survey. The Fed officially targets 2% inflation.
The core PCE price index, which excludes food and energy, increased 1.6% from July of last year, also matching estimates. Policy makers view the core gauge as a better indicator of underlying price trends and have said they’re also aiming for it to rise 2%.
After adjusting for the increase in inflation, spending rose 0.4%. The July gain was driven by a 0.8% increase in outlays for merchandise, the largest advance in four months, according to the report. Spending on services also picked up.
The Commerce Department’s report showed incomes were restrained in July by a 1.8% decline in personal interest income, although wages and salaries settled back as well. Worker pay increased 0.2% after a 0.5% advance a month earlier.
Consumer spending was projected to increase 0.5% from the prior month, while incomes were forecast to climb 0.3%. Forecasts in Bloomberg surveys had called for the broader PCE price measure to rise 1.4% from a year earlier and for the core measure to advance 1.6%.
The personal saving rate fell to 7.7% from 8% the prior month.
Adjusted for inflation, disposable income rose 0.1% following a 0.3% gain.