Consumer Spending Sharply Up

U.S. consumer spending rebounded sharply in July, government data showed on Monday, erasing the disappointment of June and bolstering hopes that the U.S. economy has recovered from its recent soft spot.

Personal spending rose 0.8 percent, more than making up for a revised 0.2 percent fall in June, the Commerce Department (search) said. The improvement in consumption was actually even larger since June's spending had been initially reported as a 0.7 percent decline.

But personal income (search) advanced at a more modest pace than expected, posting a 0.1 percent rise compared with a 0.2 percent gain the previous month. July's advance was the weakest reading since November 2002.

Analysts polled by Reuters had forecast consumption to rise 0.7 percent and income to gain 0.5 percent after strong retail and car sales last month indicated that consumers had overcome their reticence of June. That is good news for third-quarter growth, after a slowdown in the economy's expansion in the second quarter.

Stripping out the effects of inflation and taxes, disposable income rose 0.1 percent, the Commerce Department said.

In striking evidence that U.S. inflation is well under control, both the price index for consumer purchases and core prices, one of the Federal Reserve's (search) favorite measures of inflation, were unchanged last month.

Spending on durable goods, which include costly items like cars, jumped 4.1 percent, erasing June's revised 3.2 percent drop. This had been initially reported as a 5.9 percent fall. Non-durable goods spending advanced 0.2 percent and June's previously reported 0.3 percent decline was revised to show a 0.2 percent rise.

A rebound in spending had been heralded by a pick-up in both car and retail sales last month and analysts see this laying the foundation for higher growth in the second half of the year after the economy hit a rut between April and June.