Consumer spending, income climb


Published: Saturday, September 1, 2007 at 6:01 a.m.
Last Modified: Friday, August 31, 2007 at 11:16 p.m.

WASHINGTON - Consumers returned to the malls in July after taking a breather in June, although worries about the future could make the rebound short-lived.

The Commerce Department reported Friday that consumer spending rose by 0.4 percent in July, double the June increase. The spending was supported by a solid 0.5 percent rise in incomes, the best showing in this area in four months.

The gain in spending was right in line with expectations, while the increase in incomes was double what analysts had expected. However, economists cautioned that the July increases could be temporary given recent weakness in consumer confidence caused by a prolonged slump in housing and the past several weeks of financial market turbulence.

In another strong report, the Commerce Department said that orders to factories jumped by 3.7 percent in July, even better than the 3.3 percent increase that had been expected. The increase, which followed three months of lackluster gains, was led by an 11 percent jump in demand for transportation goods, including the biggest leap in orders for cars in more than four years.

The report on factory orders showed that demand for big-ticket durable goods rose by 6 percent, slightly better than the 5.9 percent estimate the government made last week. Demand for nondurable goods, items such as gasoline and food, was up 1.3 percent.

Investors are hoping that the Federal Reserve will step in to deal with the financial market turmoil by delivering a series of reductions in the federal funds rate, the benchmark rate for millions of consumer and business loans.

In a speech Friday at a conference in Wyoming, Federal Reserve Chairman Ben Bernanke said the central bank "stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets."

The Fed got good news in advance of Bernanke's speech in the spending report, which showed that a key inflation gauge tied to consumer spending which excludes food and energy rose by just 0.1 percent in July. This measure of core inflation had been up 0.2 percent in June. For the year ending in July, core inflation by this measure is up just 1.9 percent - within the Fed's preferred 1 percent to 2 percent comfort zone and well below the 2.5 percent year-over-year increase seen in February.

Investors are hoping that this retreat in inflation pressures will give the Fed the leeway to cut interest rates to protect the economy against the adverse impacts from housing and financial market turmoil.

The 0.5 percent increase in incomes in July was the best increase since a 0.8 percent jump in March. But there are worries that the slowing economy could hurt job creation in coming months. The government reported on Thursday another increase in the number of newly laid-off workers filing for unemployment benefits, pushing the weekly total to the highest level since April.

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