Washington, August 30--After putting their credit cards on ice in June, U.S. consumers set cash registers ringing again in July even as personal incomes grew at their slowest rate in nearly two years.
The Commerce Department said Monday that personal income rose 0.1% last month after rising an unrevised 0.2% in June. July's increase was the smallest advance since August 2002, and it marked the third consecutive month of decelerating growth. Personal consumption rose 0.8%, after falling a revised 0.2% in June. Commerce had originally reported a 0.7% drop in June personal consumption.
Economists surveyed by Dow Jones Newswires and CNBC had forecast personal income would rise 0.4% and spending would rise 0.8%.
"Income growth has softened disconcertingly in the past couple of months thanks largely to the slowdown in payrolls," wrote Ian Shepherdson of consulting firm High Frequency Economics in Valhalla, N.Y. in a research note. "If consumption is to rebound going through the fall, then, given the rise in energy prices, payrolls have to rebound strongly, and soon."
After surging early in the year, job creation has slowed to a crawl. The economy added just 32,000 positions in July, the weakest pace since December. Jobs data for August are due from the Labor Department this Friday, with most forecasters calling for an increase of around 150,000 jobs. But consensus projections in June and July, when hiring cooled off, missed the mark by substantial margins.
In Monday's report disposable personal income, or income after taxes, climbed 0.1% in July following an 0.2% advance in June. The July increase was the smallest since September 2003. Saving also dwindled. Personal saving as a percentage of disposable personal income was 0.6% in July, down from 1.3% in the prior month.
Spending on durable goods, designed to last three years and longer, rose 4.1%, after falling by a revised 3.2% in June. The June decline had previously been reported as 5.9%. Nondurable goods rose 0.2% in July, matching a 0.2% rise in June. Spending on services grew 0.4% in July after a 0.3% rise in June.
A price index for personal consumption expenditures excluding food and energy was unchanged from June at an 0.1% increase and up just 1.5% from a year ago. The annual measure, a gauge of inflation favored by Federal Reserve policy makers, has been stable at a 1.5% rate of increase since early spring, when rising prices started to catch the attention of economists.
"Many Federal Reserve officials have cited a 1% annualized rate for this particular index as broadly consistent with 'price stability', and anything over a 2% rate of advance as undesirable," noted Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. "We are now in the 'comfort zone.'"
Year over year, personal consumption expenditures less food and energy rose 1.5% in July from the same month in 2003. The year-over-year climb in June was also 1.5%.
