NEW YORK (CNNfn) - Consumer spending in the United States, which drives two-thirds of the economy, slowed in July, the government said Thursday, but income rose, indicating consumers may start spending again once their fears about the job market pass.|
The Commerce Department reported that personal spending – which has been one of the last bastions of strength in a year-long economic slowdown – rose only 0.1 percent last month to a $7.085 trillion annual rate, Commerce said, the lowest monthly gain since a matching 0.1 percent increase last October. Economists surveyed by Briefing.com expected a 0.1 percent gain, compared with a revised 0.5 percent gain in June.
"What we're getting are increasing signs of caution on the part of consumer," said Maureen Allyn, chief economist with Scudder Kemper Investments. "You simply can't be in this society and read all the headlines about job losses going on without wondering if this is going to apply to you sometime."
But personal incomes grew by 0.5 percent in July to an $8.786 trillion annual rate, Commerce said, the biggest increase since a 0.6 percent gain in December 2000. Economists surveyed by Briefing.com expected a 0.3 percent gain, compared with a revised 0.4 percent gain in June.
"Consumers are conserving dry powder and ammunition for future consumption," said Sun Wong Sohn, chief economist with Wells Fargo & Co. "Once they feel better about the job picture, consumers will be in position to spend some of that money they are saving now."
Separately, the Labor Department reported new claims for state unemployment benefits fell to 399,000 in the week ended Aug. 25 from a revised 400,000 the prior week, the Labor Department reported. Analysts surveyed by Briefing.com had forecast new claims of 400,000.
U.S. stocks fell – with the Dow Jones industrial average below 10,000 and the Nasdaq below 1,800 – as investors continued to fret over corporate profits and the state of the economy on the heels of Wednesday's report of anemic second-quarter gross domestic product (GDP). Treasury bond prices rose as hopes increased for another interest-rate cut by the Federal Reserve.
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The Fed has slashed its target for short-term interest rates seven times this year, from 6.5 percent, to 3.5 percent, in an effort to keep consumer spending afloat and thus help the economy avert a recession.
Economists think the rate cuts, combined with advance payments for 2001 tax credit – commonly called "rebates" – should help boost spending later this year. A stable job market would also go a long way toward boosting confidence, and Thursday's weekly claims data were a hopeful sign.
"It now appears that the trend in jobless claims is stabilizing at about 400,000 per week," said Ian Shepherdson, chief U.S. economist with High Frequency Economics Ltd. "This is well above the trend level at this time last year, but it is no higher than in the spring. This means that layoffs are continuing at a rapid pace, but they are not accelerating."
Still, the Labor Department said the number of workers claiming benefits for more than a week rose to 3.17 million in the week ended Aug. 18, compared with 3.164 million in the prior week, meaning no new jobs are being created. It was the highest level since 3.21 million the week of Sept. 26, 1992.
The four-week moving average of claims, considered a better gauge of jobless trends, swelled to 393,000 from the previous week's revised 380,500. Economists watch the four-week moving average more closely than the headline number because it smoothes fluctuations in the weekly data.
"We're finding some footing, but the problem is, the job [numbers are] lagging," Scudder Kemper's Allyn said. "Even if we get [economic] growth, we're still going to see job losses. We're really at a very critical moment where we kind of have to start seeing a little bit of good news or the bad news starts piling up."
The Labor Department is set to release August employment data on Sept. 7. In July, the U.S. unemployment rate held steady at 4.5 percent, even as non-farm payrolls shed 42,000 workers, but economists expect it rose to 4.6 percent in August as the economy lost 38,000 jobs.
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The Commerce Department said the personal savings rate – savings as a percentage of after-tax income – rose to 2.5 percent in July, its highest level since June 1999.
In July, spending on durables – costly manufactured goods expected to last at least three years, such as cars and washing machines – fell by 1.1 percent, following a 2.3 percent increase the month before.
Spending on nondurables, such as clothes and food, edged down by 0.1 percent in July for the second month in a row.
Spending on services rose by 0.4 percent for the second straight month. The services category includes gas and electric utilities, visits to doctors, bus and train fares, and rent for housing.
Americans' disposable incomes rose by 1.7 percent in July, following a 0.3 percent gain in June.
-- from staff and wire reports