U.S. consumer spending bounces back

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

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

Personal incomes were up 0.2 per cent 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 per cent 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 per cent of economic activity.

With spending rising, the personal savings rate slowed to 5.9 per cent of after-tax income. That's down from 6.2 per cent 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 one per cent 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 per cent in the April-to-June quarter, the government reported Friday. That was revised down from the initial estimate of 2.4 per cent.

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.