U.S. Consumer Spending Rose Sharply in July

U.S. Consumer Spending Rose Sharply in July

U.S. households ramped up their spending in July, providing reassurance that the economy’s decadelong expansion continued to roll despite slowing factory activity and global growth.

Personal-consumption expenditures, a measure of household spending, increased a seasonally adjusted 0.6% in July from June, a pickup from the previous two months, the Commerce Departmentsaid Friday, continuing a solid performance by the economy’s main driving force.

“The consumer is still very sturdy and providing fundamental strength to the overall economy,” said

Jack Kleinhenz,

chief economist at the National Retail Federation. “As long as we see a strong job market…the direction of the economy continues to be on track: positive but slowing.”

The prospects for continued strong spending ahead are less clear. Consumer sentiment fell in August, posting its largest drop since 2012, the University of Michigan said Friday.

Richard Curtin,

the survey’s chief economist, attributed the decline to Americans’ concerns about tariffs.

“The data indicate that the erosion of consumer confidence due to tariff policies is now well under way,” Mr. Curtin said.

An array of apparel, electronics, watches and sporting goods from Chinaare set to be hit with tariffsof 15% starting Sept. 1, the latest escalation in thegrowing trade warbetween Washington and Beijing.

Household income growth slowed sharply in July, rising just 0.1% after increasing 0.5% in June, Commerce said Friday. Wages and salaries edged up a modest 0.2%, while income on assets fell.

In July, though, shoppers were undeterred and more cash registers were ringing as Americans snapped up both long-lasting goods such as refrigerators and so-called nondurable goods like clothing. Other recent spending reports indicate consumers are holding up well. Retail sales, a separate Commerce Department measure of purchases at stores, restaurants and online,climbed 0.7% in July.

The July spending gains bode well for U.S. third-quarter growth. Forecasting firm Macroeconomic Advisers on Friday projected gross domestic product would rise at a 2.3% annual rate in the July-through-September period. That would be better thanthe 2% pace in the second quarter, but down from 2.9% overall in 2018.

Americans’ rate of saving fell slightly in July. The personal saving rate—the difference between after-tax income and spending—was 7.7% in July, down from 8.0% in June and the lowest level since November but still elevated.

The longer-term economic outlook remains uncertain due to cooling global growth, a faltering manufacturing sector, the fading effects from the 2017 tax cut and trade frictions.

Looming tariffs are already putting some businesses on edge.

“I’m telling my customers, ‘Shop now for Christmas because I’m getting all these emails from all my vendors. They’re all doing price increases starting September,” said Tara Riceberg, owner of Los Angeles-area gift shops Tweak and Tesoro.

Ms. Riceberg will face price increases of up to 30% on furniture for her new store if she doesn’t make purchases soon. Prices are going up on plastic bottles, travel pillows and hourglass minute timers from another vendor due to tariffs, meaning she will have no choice but to pass them along to customers.

“It is going to be terrifying that something that I regularly sell at X is going to be 30% more expensive come December,” Ms. Riceberg said.

Manufacturers continue to struggle.U.S. factory output fell in Julyfrom a month earlier and from a year earlier, the Federal Reserve reported.

IHS Markit

reported last week an index of factory activity in August fell in the U.S., Japan, Germany and the eurozone. The U.S. decline marked the first manufacturing contraction since September 2009, according to the firm’s surveys of purchasing managers.

Business spending remains a wild card. An underlying measure of business investment has been trending lower this year. But corporate profits rebounded strongly in the second quarter, according to figures released Thursday.

Friday’s report included the Fed’s preferred inflation gauge, which showed price pressures remain mild. The price index for personal-consumption expendituresrose 0.2% in July from the prior monthand increased 1.4% from a year earlier. Excluding volatile food and energy costs, prices were up 0.2% on the month and rose 1.6% from a year earlier.

Write toSarah Chaney at[email protected]

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