Higher wages pushed consumer spending up in July

29 Aug 2015 | Author: | No comments yet »

Americans Step Up Spending.

Spending rose 0.3 percent in July, helped by purchases of big-ticket items such as cars, the Commerce Department reported Friday. Weak inflation continues to complicate things for the Federal Reserve as it weighs whether the economy is healthy enough to begin raising short-term interest rates.U.S. households spent moderately in July amid a healthy rise in wages, suggesting the economy carried some momentum into the third quarter despite turbulence abroad. The 0.3 percent increase is below economists’ predictions of a 0.4 percent jump for July, but followed closely behind the revision of June data up to a 0.3 percent increase. A long stretch of strong job creation, rising home values and a dive in energy costs are strengthening the financial standing of households, who are in turn fueling the economy’s expansion.

Excluding volatile energy and food, prices are up just 1.2 percent over the past 12 months, far below the Fed’s goal of having prices rise at an annual rate of 2 percent. When adjusted for inflation, consumer spending rose 0.2 percent; it was flat in June. “We score this report as a solid adjunct to yesterday’s strong G.D.P. report that should encourage members of the Fed’s policy-making committee that income and spending fundamentals remain in good shape,” said John Ryding, chief economist at RDQ Economics in New York. That helps explain why the U.S. continues to post steady, if unspectacular, growth, while China’s once-juggernaut economy stumbles and Europe muddles along. The company is testing a feature in the San Francisco area that lets local businesses promote their services in a special box at the top of some search results, Google said on a Web site Friday.

Economists say that underlying strength — also highlighted by a rebound in business spending, and buoyant housing and labor markets — gives the economy muscle to weather the fallout from the market rout. Consumer spending represents more than two-thirds of economic activity in the U.S., providing a buffer against global woes. “This report brings further evidence that at least 70% of the U.S. economy is robust,” Oxford Economics economist Gregory Daco said in a note to clients. “Furthermore, it shows solid wage progress which should further bolster housing activity.” The report doesn’t alter the narrative of subpar growth in the U.S., and it offers a snapshot of the economy before the recent turmoil in the stock markets.

Fed officials have indicated they would raise rates-pinned near zero since 2008 to stoke the economy to stronger growth—as early as their September policy meeting if data show economic activity picking up. Using the Web to find local services isn’t new, with Amazon.com recently moving into the market to compete against more established providers such as Yelp and Angie’s List. The consumer spending data was the latest report indicating momentum in the economy as it confronted global markets turbulence, sparked by concerns over a slowing Chinese economy, which has diminished the chances of an interest rate increase next month.

The pickup in spending and incomes supports early forecasts that the economy will grow at a modest but stable 2% to 3% annual rate in the current quarter. Google is expanding into different areas as it seeks ways to boost user traffic and advertising dollars. “From unclogging the bathroom sink to getting back into a locked apartment, there are moments throughout the day when people need a quick solution to a big problem,” Google said. “Customers can read detailed reviews, submit a service request, or call your business directly for more information.” ● Ian Rogers, a key figure in Apple’s new streaming music service, is leaving the company. The personal consumption expenditures index, excluding food and energy, rose 1.2 percent in the 12 months through July, the smallest rise since March 2011.

The topic this year is “Inflation Dynamics and Monetary Policy,” an apt subject given the strangely subdued state of inflation in many advanced economies, including the U.S. But Friday’s report also showed persistently weak inflation, a sign that despite stability, the economy continues to underperform six years after the recession. The price index for personal consumption expenditures-the Federal Reserve’s preferred inflation gauge-grew 0.1% from June and 0.3% from a year earlier.

A person familiar with the matter confirmed reports that Rogers was planning to move to Europe to work with a luxury brand. ● Russian President Vladimir Putin signed a decree Friday that is likely to place Moscow’s second-largest airport, Sheremetyevo, under the control of Arkady Rotenberg, a businessman who is a Putin friend, an industry source said. It is unclear whether the sharp drop in global stock markets that began last week has caused U.S. consumers to rein in spending, which would slow the economy. Louis President James Bullard, in an interview on the sidelines of a Fed economic symposium in Jackson Hole, Wyo., pointed to a string of positive economic readings and said recent market volatility hadn’t changed his outlook for the economy. “We have very good fundamentals,” he said. “We have good labor-market data. The income increase was predictable, as it has increased the last four months; however, the wage and salary increase last month was the largest since November 2014. We’ve just received some pretty good growth data.” A separate report Friday, the University of Michigan’s index of consumer sentiment, showed a dip in consumer confidence to a reading of 91.9, which is still relatively high.

Rotenberg’s businesses range from infrastructure projects to telecoms. ● The Brazilian government says gross domestic product contracted for the second consecutive quarter, sending the economy of Latin America’s biggest country into a technical recession. IBGE said the biggest drop was in the industrial sector, where construction output fell 8.4 percent. ● Strong winds and high waves that pounded the northern coast of Alaska have led Royal Dutch Shell to temporarily stop exploratory oil drilling in the Arctic Ocean. “Due to high wind and sea states, we have paused all critical operations in the Chukchi Sea,” spokesman Curtis Smith said. Friday’s report showed the bulk of last month’s spending increase was due largely to higher purchases of durable goods—big-ticket items like cars and kitchen appliances—which climbed 1.1%.

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