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Associated Press
U.S. consumer spending slid 0.1percent last month after a 0.4percent increase in June, the government said.

Consumer spending drops as car sales stall

WASHINGTON – U.S. consumer spending fell in July, with a drop in auto purchases accounting for most of the weakness. Income growth also slowed.

Consumer spending edged down 0.1 percent last month after a 0.4 percent increase in June, the Commerce Department reported Friday. It was the first decline in spending since January. Income growth slowed to 0.2 percent in July, the weakest showing in seven months.

The fall in spending came primarily from a decline in auto sales, which took a breather in July after posting big gains in recent months, although spending in other areas was also weak.

Consumer spending accounts for 70 percent of economic activity, so it needs to recover for the economy to keep its momentum in the second half of the year.

Economists had expected spending would slow in July based on reports of weak retail sales, but they said the slowdown is expected to be temporary given that job growth has been so strong. The combination of rising incomes from more people working and falling gas prices, which will give consumers more to spend on other items, is expected to lift spending in coming months.

Paul Dales, senior U.S. economist at Capital Economics, said he is still forecasting overall economic growth will come close to 3 percent in the July-September quarter.

The July spending decline reflected a 0.7 percent drop in purchases of durable goods such as autos and a smaller 0.1 percent dip in purchases of nondurable goods. Spending on services was flat.

With a slight income gain and spending declining, the personal saving rate rose to 5.7 percent of after-tax income in July, up from 5.4 percent in June. The July saving rate was the highest since it stood at 10.5 percent in December 2012.

An inflation gauge tied to consumer spending edged up 0.1 percent in July and was 1.6 percent higher than 12 months ago. That is still below the Federal Reserve's inflation target of 2 percent.

The government reported Thursday that the overall economy grew at an annual rate of 4.2 percent in the April-June quarter, even faster than the previous estimate. It was a solid rebound after the economy went into reverse in the January-March quarter, shrinking at an annual rate of 2.1 percent. That setback came in the wake of unusually cold weather that kept shoppers away from the malls and reduced factory production.

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