US consumer spending rises 0.4% in July, ending recent declines

30 August 2012 19:05  [Source: ICIS news]

WASHINGTON (ICIS)--US consumer spending rose by 0.4% in July from June, the Commerce Department said on Thursday, the strongest gain in five months and a sign that households are somewhat more confident about the US economy going forward.

In its monthly report on US take-home pay and spending, the department said that personal incomes rose by $39.9bn (€31.9bn) or 0.3% in July from June.

In addition, the report said that consumer spending – what the department calls personal consumption expenditures (PCE) – increased by $46bn or 0.4% last month.

That is a marked change from June when there was no gain at all in consumer outlays and the 0.2% decline in PCE recorded for May.

The pace of consumer spending in July was on a par with or even slightly better than the PCE gains of 0.3% seen in both March and April.

US gross domestic product (GDP) growth in the first quarter this year was 2%, while GDP expansion fell to an even weaker 1.7% in the second quarter. That second-quarter decline in GDP growth reflected the downturn in consumer spending during the period.

The gain in July’s consumer spending data – if continued over the next two months – could mean that GDP growth might return to a rate of 2% or more for the third quarter.

Consumer spending accounts for as much as 70% of all US commerce and production.

The department’s report on July’s consumer outlays said that household purchases of durable goods (appliances, cars, etc.) grew by 1.1% last month compared with the more modest increase of 0.4% seen in June.

Consumer spending on non-durable goods (clothing, food, etc.) showed even better growth, climbing by 0.5% in July in contrast to the 0.5% decline in June.

Purchases of services saw a gain of 0.3% in July, up from a slight decline in June.

The department’s report on personal consumption expenditures reflects positive gains shown in its earlier data on retail sales.

Two weeks ago, on 14 August, the department reported that retail sales rose by 0.8% in July from June, ending a three-month run of declining consumer spending.

While the retail sales gain of 0.8% was more positive than Thursday’s report of a 0.4% rise in personal consumption outlays, the department says the PCE data is more reliable because it is more broadly based than the retail sales report.

Retail sales measures only purchases of goods, along with food purchases at restaurants.

But the PCE report includes not only retail sales activity but other purchasing data such as energy, all foods and services and consequently is seen as a better barometer of consumer spending.

($1 = €0.80)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

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