Consumer spending edges up in July with help from Cash for Clunkers

U.S. consumer spending edged up in July with help from the popular Cash for Clunkers program, but household incomes, fuel for future spending increases, were flat. Consumer spending is the big question mark as the economy struggles to emerge from the recession. Economists worry that households hurt by rising unemployment, weak income growth and depleted investments will not provide the support the economy needs to rebound to sustained growth. Commerce Dept said consumer spending rose 0.2% in July, matching economists expectations. Personal incomes were unchanged in July, a weaker showing than the expected 0.2% gain. With incomes flat in July as spending rose, the personal savings rate fell slightly to 4.2% from 4.5% in June. The savings rate was 2.6% a year ago. Economists expect the savings rate to rise in coming months to 6% as workers try to rebuild depleted nest eggs. The process of rebuilding savings is one of the factors expected to depress consumer spending & weaken the broader recovery. The modest rise in spending last month followed a 0.6% jump in June, a gain driven by a surge in gas prices. Adjusting for inflation, spending rose 0.2% in July & 0.1% in June. The slight rise in spending reflected 1.3% jump in purchases of durable goods like cars, a gain propelled by the clunkers program starting at the end of July. Purchases of nondurable goods like clothing actually fell 0.3% last month. The unchanged reading for personal incomes followed large swings in the last 2 mos reflecting payments to individuals from the gov't's $787B economic stimulus program. The payments pushed incomes up 1.4% in May & their absence in June caused incomes to fall 1.1%. Incomes took a beating in the recession as employers slashed payrolls & forced workers to take unpaid days off to hold down wage costs. In addition, households with sufficient income to hit the shopping malls trimmed their purchases & boosted savings to cope with a severe financial crisis which sent the stock market in a nosedive in 2008. The concern is consumer spending, which accounts for 70% of economic activity, may not be strong enough to propel a sustained recovery from the longest recession since World War II. The Fed Reserve pushed a key interest rate to a record low near 0 in an effort to boost the economy and is pledging to keep rates low for a considerable period even as the economy begins to grow again. The Fed's able to make that pledge because inflation isn't a problem. A price gauge tied to consumer spending's unchanged in July after 0.5% jump in June that reflected a big rise in energy prices. Excluding food & energy, price gauge show 0.1% rise & in the past year rose 1.4%, well within the Fed's comfort zone for inflation. The gov't reported the overall economy, as measured by the GDP, fell at an annual rate of 1% in the 2nd-Q. It marked the 4th consecutive decline in GDP, longest stretch on records that go back over 6 decades. Many economists believe GDP in the current 3rd-Q will rebound to growth over 3% & remain at the level in the 4th-Q. The economic growth likely will reflect a boost from the highly successful clunkers program to boost car sales & other gov stimulus efforts. But the fear is economic growth will slip back in early part of 10 as the impact of the gov programs fade & unemployment rises. The 9.4% jobless rate in July is expected to rise to 9.5% in Aug & keep rising til it tops 10%. That will be a tough environment to see strong gains in consumer spending. Some analysts worry U.S. can be headed for a double-dip recession in which the economy resumes growing for brief period only to fall back into a downturn. The troubles consumers face meant tough times for the nation's retailers. A survey of big retail chains showed shoppers remain tightfisted in July, a dev't raising worries on back-to-school sales & the holiday shopping season later this year. In July, mall-based apparel stores fared the worst with Macy's & teen retailers Wet Sea & Abercrombie & Fitchl reporting disappointing results. But apparel discounters like Ross Stores & TJX both reported sales gains exceeding Wall Street estimates. TJX operates the T.J. Maxx and Marshalls chains.