Maine news, sports, weather from Portland Press Herald / Maine Sunday Telegram, Portland, Maine

August 15, 2012

July spending raises hopes that slump is ending

The second half of the year starts with consumers buying more in all major categories.

By Martin Crutsinger / The Associated Press

WASHINGTON — Hopes that the economy may emerge from its slump got a lift Tuesday from a report that Americans increased their spending at retailers in July by the most in five months.

From cars, electronics and sporting goods to furniture, building supplies and garden equipment, every major category of spending rose last month. It was a bright start to the second half of the year after consumers had reduced their retail spending in each month of the April-June quarter.

Retail sales rose 0.8 percent from June to July, the Commerce Department said. It was the sharpest increase since February.

The stepped-up spending was evident in Home Depot's report Tuesday that its customers spent more on remodeling and repair projects in the second quarter. Those gains suggested that consumers are feeling more optimistic about the recovery of the housing market.

Americans appear to be taking their cue from the economy's modest but steady improvements.

Employers added 163,000 jobs in July, the best month for job growth since February. Home prices are up. The value of U.S. exports reached a record high last month. U.S. consumers are expressing more confidence. Stock indexes are near their highs for the year. And consumer confidence rose in July for the first time in five months.

"It looks like lower gas prices, a nice rally in stocks and stronger job growth ... helped boost consumer spending" in July, said Jennifer Lee, senior economist at BMO Capital Markets.

Some economists cautioned that consumers will likely sustain their spending increases only if hiring continues to strengthen. In the meantime, many remain anxious about the job market and held back by slow wage gains and high debts.

"Americans are not throwing caution to the wind," said Chris Christopher, a senior economist at IHS Global Insight.

A brighter outlook for the economy might also make the Federal Reserve hesitant to take further action to boost growth when its policy committee meets in September.

Still, the overall economy remains subpar. It grew at an annual rate of just 1.5 percent from April through June. That's far too weak to lower the unemployment rate, which ticked up in July to 8.3 percent.

And inflation remains mild, which gives the Fed more leeway to act if it decides the economy needs further help. The Labor Department said in a separate report Tuesday that wholesale prices rose 0.3 percent in July from June. Lower energy prices offset sharp gains in the costs of food, cars and light trucks.

Wholesale prices increased only 0.5 percent in the 12 months that ended in July. That's the lowest since October 2009. Excluding food and energy costs, prices rose 2.5 percent in the 12 months that ended in July. It was the smallest year-over-year gain since June 2011.

The government's retail sales report is the government's first look each month at consumer spending, which drives roughly 70 percent of economic activity.

Overall, consumer spending on goods and services grew only 1.5 percent in the April-June quarter, the slowest pace in a year.

Americans are also saving more. The savings rate – the portion of Americans' after-tax income that they don't spend – rose to 4.4 percent in June, the highest in a year.

 

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