Consumer Spending in U.S. Rose in July on `Cash for Clunkers'

Consumer Spending in U.S. Rose in July on `Cash for Clunkers'


Aug. 28 (Bloomberg) -- Consumer spending in the U.S. rose in July as households took advantage of the government's `cash-for- clunkers' program.

The 0.2 percent gain in purchases was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Incomes were unchanged, causing the savings rate to decrease.

Spending is projected to rise this quarter as auto dealers benefit from the administration's incentive plan, while retailers such as Kohl's Corp. and J.C. Penney Co. struggle to lure households shaken by mounting job losses. A record loss of wealth may prompt Americans to reduce debt and boost savings, signaling consumers will play a smaller role in the rebound.

``The consumer is simply not in a position to lead us in this recovery,'' Joseph Brusuelas, a director at Moody's Economy.com in West Chester, Pennsylvania, said before the report. ``Household finances will remain on shaky ground. The savings rate could rise through the rest of the year as consumers have a ways to go in terms of reducing debt.''

Economists forecast spending would rise 0.2 percent, according to the median of 75 estimates in a Bloomberg News survey. Projections ranged from no change to a 0.6 percent gain. The department revised June spending to show a 0.6 percent increase compared with an initial estimate of 0.4 percent.

Incomes were unchanged after dropping 1.1 percent in the prior month. The decrease in income in June reflected the fading boost from government stimulus-related tax cuts and transfers.

Wages Rise

Wages and salaries increased 0.1 percent, the first gain this year, after dropping 0.3 percent the prior month.

Today's report also showed inflation decelerated. The price gauge tied to spending patterns dropped a record 0.8 percent from July 2008.

The Federal Reserve's preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from the previous month and was up 1.4 percent from a year earlier, the smallest gain since September 2003.

Adjusted for inflation, spending increased 0.2 percent following a 0.1 percent gain the prior month.

Because the increase in spending was bigger than the gain in incomes, the savings rate fell to 4.2 percent from 4.5 percent the prior month.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, jumped 1.8 percent last month after increasing 0.8 percent in the prior month.

Outside of Autos

Consumer purchases of non-durable goods decreased 0.3 percent for a second month, today's report showed. Spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.

Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace in the second quarter, revised figures from the Commerce Department showed yesterday. Economists in a Bloomberg survey anticipated a 1.3 percent drop. The economy shrank at a 1 percent annual rate from April to June, also less than analysts' median forecast.

While economists project that spending will start growing again this quarter, much of the gain will be driven by programs such as the Obama administration's cash-for-clunkers plan.

Auto industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the most since September, after the government offered credits of up to $4,500 to trade in gas-guzzlers for more fuel-efficient cars.

Sales at retailers in July fell 0.1 percent, the first drop in three months, as the boost from the automobile plan failed to overcome cuts at other merchants, according to government figures released on Aug. 13.

Below Average

Forecasts call for below-average gains in spending due to stagnant incomes, a lack of jobs and an unemployment rate that may reach 10 percent early next year for the first time since 1983, according to a Bloomberg survey taken this month.

Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with a 2.8 percent gain on average during the six-year expansion that ended in December 2007, the survey showed.

Company results signal shoppers are under pressure. J.C. Penney, the third-largest U.S. department-store chain, issued a third-quarter earnings forecast that trailed analysts' estimates and said sales may fall 3 percent to 5 percent from the same period last year. Smaller rival Kohl's said second-quarter profit fell 3 percent as sales at stores open for at least a year declined.

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