The faltering economic recovery received a modest shot in the arm last month as consumer spending increased by 0.4%, the best reading since March. Personal income in July managed a small rise of 0.2%, knocking the savings rate from 6.2% in June to 5.9% in July.
In the meantime, the Personal Consumption Expenditures Index, which is a broad look at prices, rose 0.2%, translating into an inflation-adjusted rise in spending of 0.2%. Ex-food and energy, prices rose a scant 0.1%, underscoring that inflation is not a threat at the present time.
Lackluster confidence, growing worries about jobs and the weak housing market have all played a part in hampering consumer spending and raising worries that the economy could soon enter another recession.
GDP slowed markedly in Q2 and Fed Chief Ben Bernanke has become increasingly concerned that the reluctance among consumers to increase outlays could tip the economy back into a recession. Although the focus on savings and its return to more historical norms may eventually set the stage for a healthier recovery, it has restrained growth this year.
Until job creation strengthens and bolsters income, increases in consumer spending and the recovery are likely to remain muted through the rest of the year.
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