Shoppers spent more freely in July as consumer spending rose slightly, though tepid growth in personal income raised concern about whether the trend will continue.
The Commerce Department reported yesterday that consumer spending, which accounts for about two-thirds of U.S. economic activity, increased by 0.8 percent in July from the previous month. The appetite to spend was led by a rebound in demand for big-ticket goods, such as cars, helped by buyers' incentives.
The latest snapshot of buyer behavior marked an improvement from June, when consumers cut spending by 0.2 percent. High energy prices and a sluggish job market weighed on consumers' willingness to spend, creating what Federal Reserve Chairman Alan Greenspan had described as a "soft patch" in economic growth.
Incentives on cars and discounting of other goods helped bring buyers back in July. "Consumers know a deal when they see one and know when to wait for one to show up," said Joel Naroff, president of Naroff Economic Advisors.
The 0.8 percent rise was slightly better than the 0.7 percent increase some economists had expected.
Americans' incomes, the fuel for future growth, nudged up just 0.1 percent in July, following a 0.2 percent rise the previous month. July's income growth fell short of some analysts' predictions of a 0.5 percent gain. The 0.1 percent rise was among the smallest advances since income growth was flat in August 2002.
The spending and income figures are not adjusted for price changes.
The economy grew at a 2.8 percent annual rate in the April-to-June quarter of this year as high energy prices took a toll on economic activity.
That was more sluggish than first thought, and marked a slowdown from the 4.5 percent growth rate in the previous quarter.
Economists believe, however, that the economy is picking up its pace in the July-to-September quarter, with estimates for growth ranging from a rate of around 3 percent to just topping a 4 percent pace.
Consumer spending on durable goods, such as cars, rose 4 percent, compared with a 3.2 percent drop in June. Spending on nondurables, such as food, increased 0.2 percent for a second straight month. Spending on services rose 0.4 percent in July, up from a 0.3 percent gain in June.
Some economists said Monday's report suggested consumer spending in the current quarter got off to a good start. Mark Vitner, economist at Wachovia, is estimating consumer spending will grow at a 3.2 percent annual rate in the third quarter, which would be an improvement from the second quarter's lackluster 1.6 percent pace.
Stuart Hoffman, chief economist at PNC Financial Services Group, is a bit wary. "Consumers are hanging in there, but the momentum is not strong," he said.