U.S. Consumer Spending, Personal Incomes Fall In July

Washington, DC (AHN) - The economy got a poor start to the third quarter as consumer spending and personal incomes fell in July as the benefit of government stimulus checks seen in May and June continued to fall off.

The Commerce Department reported Friday that July consumer spending rose a modest 0.2 percent, down from the 0.6 percent in June. Furthermore, the department said the June and July figures were skewed by a large rise in inflation during those months which in turn raised prices, thus raising consumer spending data. Inflation-adjusted data showed a 0.4 percent drop in July consumer spending and a 0.1 percent drop in June spending.

Personal incomes in July fell 0.7 percent, a larger fall than the 0.1 percent economists were expecting. The July data marks the steepest monthly decline in nearly three years.

"What I take out of this report is that the quarter started off with a large negative, and that implies we will not see growth anywhere the 3.3 percent second-quarter growth pace," said Joel Naroff, president of Naroff Economic Advisors, according to MarketWatch.

Core consumer prices rose 0.3 percent in July, the same as in June. Prices, including food and energy, rose 0.6 percent in July, which now puts year-over-year inflation at 4.5 percent. This rate is much higher than the comfort range of the Federal Reserve and should spark debate at the next Fed meeting on whether interest rates should be raised to help curb inflation.