US consumer spending rose at the strongest pace in four months in July, supported by a small gain in incomes that offered hope consumers will be able to keep contributing to a modest recovery.
The Commerce Department said spending increased 0.4 per cent, the largest gain since March, after being unchanged in June.
US stock index futures edged up after the data and Treasury debt prices were steady at higher levels. The dollar showed losses against the yen but rose against the euro.
The income and spending report was a relief after a raft of weak data for July that had fueled fears economic growth might continue to slow during in the third quarter.
The government on Friday lowered second-quarter gross domestic product growth estimates to a 1.6 per cent annual rate from 2.4 per cent.
Consumer spending, which normally accounts for 70 per ent of economic activity, is being dampened by stubbornly high unemployment. Friday's GDP report showed spending increased at a 2 per cent rate in the second quarter, up from an earlier estimate of 1.6 per cent.
The Commerce Department said spending adjusted for inflation increased 0.2 per cent last month after edging up 0.1 per cent in June. Real spending on goods rebounded 0.4 per cent, while expenditure on services increased 0.2 per cent.
Personal income increased 0.2 per cent last month after being unchanged in June. Markets had expected income to rise 0.3 per cent in July.
Wages and salaries rose at a $22 billion annual rate during July after shrinking at an $8 billion rate in June.
But real disposable income fell 0.1 per cent, the first decline since January, following June's 0.1 per cent gain.
The savings rate slipped to 5.9 per cent from 6.2 per cent the previous month. Savings fell to an annual rate of $673.4 billion.
Inflation did not appear to be a problem.
The report showed the personal consumption expenditures price index, excluding food and energy, was up 1.4 per cent in the 12 months to July, unchanged from June. The index is a key inflation measure monitored by the Federal Reserve.
Reuters