Spending, wages grow slowly in July

Bloomberg NewsAugust 31, 2013 

— Consumer spending rose less than forecast in July as income growth slowed, indicating further job gains are needed to sustain household purchases.

Consumer purchases, which account for about 70 percent of the economy, rose 0.1 percent after a revised 0.6 percent increase the prior month that was larger than previously estimated, the Commerce Department reported Friday in Washington. The median forecast in a Bloomberg survey of economists called for a 0.3 percent rise. Incomes increased 0.1 percent, down from 0.3 percent the previous month.

A bigger pickup in job growth and wage gains are needed to help consumer spending overcome weak global demand. Rising mortgage rates threaten to derail the household purchases of appliances and automobiles that have supported home improvement retailers such as Lowe’s and Home Depot.

“It’s difficult for consumers to increase their spending” as Americans face “concern about the stability of the labor market, whether they’re going to have their jobs” as well as the need to rebuild savings, said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh. “There is some pent-up demand out there still.”

Gross domestic product grew at a 2.5 percent annualized rate in the second quarter after a 1.1 percent gain in the first three months of the year, the Commerce Department reported Thursday. Consumer spending in the second quarter climbed at a 1.8 percent annualized rate after a 2.3 percent pace in the first three months of the year, the figures showed.

Adjusting consumer spending for inflation, purchases were unchanged in July compared with a 0.2 percent increase the previous month, according to Friday’s report.

Faster job gains would help drive the wage increases needed to boost household purchases. Employers probably added 180,000 jobs in August, according to the Bloomberg survey median ahead of the Sept. 6 report from the Labor Department. Hiring gains averaged 197,500 a month in the first six months of this year, up from 180,000 in the second half of 2012.

Higher home prices, which have boosted household net worth, are propelling demand for washers, dryers and other expensive items that Americans were reluctant to buy in the housing downturn, Lowe’s CEO Robert Niblock said last week.

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