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Consumer spending rises 0.4 percent in July

WASHINGTON (AP) - Americans spent last month at the fastest pace
in four months, helped by a jump in demand for automobiles.

Consumer spending rose 0.4 percent in July after three
lackluster months, the Commerce Department said Monday. Spending
fell 0.1 percent in April, rose a tiny 0.1 percent in May and was
flat in June.

Personal incomes were up 0.2 percent in July, less than expected
but at least an improvement over June when incomes had not risen at
all.

The July spending gain was the highest since a 0.5 percent rise
in March. But the concern is that demand could taper off in the
second half of this year if unemployment remains near double
digits.

If Americans don't have jobs, they don't have the income to
support spending. Consumer spending is critical because it accounts
for 70 percent of economic activity.

Peter Newland, an economist at Barclays Capital Research, said
he viewed the July increase in spending as a good omen for the rest
of the July-to-September quarter.

"All in all, July's report supports our view that consumer
spending will continue to recover, albeit modestly, supported by a
gradual improvement in labor income," Newland wrote in a research
note.

With spending rising, the personal savings rate slowed to 5.9
percent of after-tax income. That's down from 6.2 percent in June,
the highest in nearly a year. Even with the July decline, the
savings rate is nearly three times higher than it was before the
recession began in December 2007.

Economists had long worried about low savings in the United
States. But now they fear households have become too frugal and
that is holding back consumer spending.

The gain in spending reflected a 1 percent jump in demand for
durable goods. About half of that increase came from a jump in auto
sales, the government said.

Economists had expected a rebound in spending for July. An
earlier government report showed that retail sales rose during the
month for the first time in three months.

Still, the economy is growing too slowly to support sustained
job growth and some fear it could fall back into a recession.
Economic growth slowed to 1.6 percent in the April-to-June quarter,
the government reported Friday. That was revised down from the
initial estimate of 2.4 percent.

A string of weak economic reports in recent weeks has prompted
economists to trim their growth forecasts for the rest of the year
and next.

For July, private wages and salaries rose at an annual rate of
$23.3 billion. That compared with a decline of $45 billion in June
with manufacturing and service payrolls both showing increases.

Government wages and salaries fell at an annual rate of $1.1
billion in July after a decrease of $3.3 billion in June. The
decline in the number of temporary census workers subtracted $1.4
billion at an annual rate from federal payrolls in July after
subtracting $3.4 billion in June.

The weak economy has kept inflation under control. A price gauge
tied to consumer spending rose a modest 0.2 percent in July and is
up just 1.5 percent over the past 12 months. Excluding food and
energy, prices rose 0.1 percent in July and are up 1.4 percent over
the past 12 months.

(Copyright 2010 by The Associated Press. All Rights Reserved.)


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