08/28/2015 08:56 EDT | Updated 08/28/2016 01:12 EDT

US consumer spending post moderate rise in July; wages and salaries make big jump

WASHINGTON — U.S. consumers increased their spending moderately in July, as wages and salaries made their biggest jump in eight months.

Spending rose 0.3 per cent in July, helped by purchases of big-ticket items such as cars, the Commerce Department reported Friday. June's result was revised up to a matching 0.3 per cent gain.

Incomes increased 0.4 per cent in July. The key category of wages and salaries rose 0.5 per cent, the biggest advance since last November.

The report indicates that consumer spending, which accounts for 70 per cent of economic activity, got off to a good start in the third quarter. The result suggests that strong momentum from the second quarter rolled into July.

Economists believe the economy will be fueled in the second half of this year by solid income and spending gains.

The saving rate rose to 4.9 per cent in July from 4.7 per cent in June, stemming in part from a big jump in after-tax income of 0.5 per cent, the best gain since November.

A key price gauge tied to consumer spending that is closely watched by the Federal Reserve posted a tiny 0.1 per cent increase in July. Over the past 12 months, the figure is up just 0.3 per cent, reflecting the big plunge in energy prices over the past year. Excluding volatile energy and food, prices are up just 1.2 per cent over the past 12 months, far below the Fed's goal of having prices rise at an annual rate of 2 per cent.

The low inflation rate and recent turbulence in stock markets, triggered by a sharp slowdown in the Chinese economy, have left many economists believing that the central bank will keep a key interest rate unchanged when the Fed meets in September. That is a reversal of expectations just a few weeks ago that the Fed would likely raise rates starting in September.

The overall economy, as measured by the gross domestic product, grew at a healthy 3.7 per cent pace in the April-June quarter, the government reported Thursday in a sharp upward revision of an earlier estimate of a more moderate gain of 2.3 per cent.

Part of the new-found strength came from an upward revision in consumer spending, which grew at a 3.1 per cent rate in the spring, up sharply from a 1.8 per cent increase in the first quarter when a harsh winter kept shoppers away from stores.

Economists believe that growth will remain solid in the current July-September period. They believe consumer spending will be supported by further strong gains in employment. The jobless rate in July was at a seven-year low of 5.3 per cent. With more people working, that supports continued gains in consumer spending.

Martin Crutsinger, The Associated Press

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