Incomes Flat, Consumer Spending Up in July

Washington, DC, Aug. 28, 2009--Personal incomes in the U.S. were unchanged in July as the impact of federal stimulus payments waned and wages rose for the first time in a year, the Commerce Department reported Friday.

However, consumer spending increased 0.2% last month, led by higher outlays for autos. Spending rose for the third month in a row.

On the surface, the July report was slightly weaker than expected, but with upward revisions to figures for May and June, income and spending levels were higher than forecast.

Morgan Stanley economists raised their third-quarter forecast for gross domestic product growth to 4.8% from 4.3%.

Economists had been looking for July incomes to rise by 0.2% in July.

Excluding food and energy, consumer prices rose 0.1% on the month. In the past year, consumer prices are down 0.8%, while core prices are up 1.4%, the lowest inflation rate of this business cycle.

With spending rising faster than incomes, the personal savings rate fell to 4.2%, down from 4.5% in June.

The savings rate has now retraced back to January's rate after surging in April and May.

The government's report paints a picture of consumers slowly climbing out of the worst recession in generations.

Real disposable incomes are up 0.7% since bottoming in March, but are down 3.5% from the peak in May 2008, when taxes were cut. Real consumer spending has risen 0.3% from the bottom in April, but is down 1.6% since the recession began in December 2007.

Incomes and spending were revised higher in May and June. Incomes dropped 1.1% in June, not the 1.3% originally reported. Real spending rose 0.1% in June, rather than falling 0.1% as initially reported.