Consumer Spending up in July; Incomes Flat

Consumer spending edged up in July with help from the popular program, but household incomes, the fuel for future spending increases, were flat.

Consumer spending is the big question mark as the economy struggles to emerge from the longest recession since World War II. Economists worry that households hurt by rising unemployment, weak income growth and depleted investments will not provide the support the economy needs to rebound to sustained growth.

The Commerce Department said Friday that consumer spending rose 0.2 percent in July, matching economists' expectations. Personal incomes were unchanged last month, a weaker showing than the expected 0.2 percent gain.

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

Economists expect the savings rate to rise in coming months to around 6 percent as workers try to rebuild depleted nest eggs. The process of rebuilding savings is one of the factors expected to depress consumer spending and weaken the broader recovery.

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

The unchanged reading for personal incomes followed large swings in the previous two months that reflected payments to individuals from the government's $787 billion economic stimulus program. Those payments pushed incomes up 1.4 percent in May and their absence in June caused incomes to fall 1.1 percent.

The Federal Reserve has pushed a key interest rate to a record low near zero in an effort to boost the economy and is pledging to keep rates low for a considerable period even as the economy begins to grow again.

The Fed is able to make that pledge because inflation is not a problem. A price gauge tied to consumer spending was down 0.4 percent in July, reflecting the drop in energy prices. Excluding food and energy, the price gauge showed a 0.1 percent rise, and over the past year increased 1.4 percent, well within the Fed's comfort zone for inflation.