After rising 0.3 percent in June, income was held back in part by steep government spending cuts that reduced federal workers’ salaries. Overall wages and salaries tumbled $21.8 billion from June, with a third of the decline coming from forced furloughs of federal workers.
Consumers cut their spending on long-lasting manufactured goods, like cars and appliances. Overall spending had risen 0.6 percent in June.
The tepid gains suggested economic growth was off to a weak start for the quarter.
A measure of consumer confidence slipped this month from a six-year high in July, as Americans expressed less optimism about the coming months. Americans said they were less confident that the job market would improve, but more confident that their income would rise.
Consumer spending drives roughly 70 percent of economic activity. So the weak spending report led some economists to sound a more pessimistic note on growth in the current quarter.
“This is a disappointing report on a number of levels,” said James Marple, senior economist at TD Economics. “Prospects for a pickup in economic growth in the third quarter hinge on a broad-based acceleration in spending by households and business to offset the ongoing drag from government. The data for the first month of the quarter are not following this script.”
Several analysts said that economic growth was unlikely to match the 2.5 percent annual rate reported Thursday for the April-June quarter. That was more than twice the growth rate in the first quarter and far above an initial estimate of a 1.7 percent rate for April through June.
The Federal Reserve will consider the latest data at its September meeting, when it decides whether to begin pulling back on its stimulus efforts. The most critical factor the Fed will weigh is the August employment report, due out next Friday.
Another concern is that rising interest rates could dampen consumer spending, particularly on homes and cars. Mortgage rates have already risen more than a full percentage point since May.
The small rise in spending was driven by a 0.9 percent gain in purchases of nondurable goods, like clothing. Purchases of durable goods like cars fell 0.2 percent, while money spent on services like utilities and doctor’s visits was unchanged in July.
A price gauge tied to consumer spending was up 0.1 percent in July compared to June. Prices excluding volatile food and energy are up just 1.4 percent compared to a year ago, significantly below the Federal Reserve’s 2 percent target for inflation.
Article source: http://www.nytimes.com/2013/08/31/business/economy/consumer-spending-and-income-rose-a-faint-0-1-in-july.html?partner=rss&emc=rss