U.S. consumer spending rose solidly to begin the third quarter, increasing by the most in five months, the government reported Thursday, offering hope that the gain could help economic growth accelerate. The Commerce Department said consumer spending increased 0.4 percent in July after a flat reading the previous month and a decline in May. The increase in consumer spending, which accounts for 70 percent of U.S. economic activity, was in line with economist predictions. Adjusted for inflation, consumer spending still increased 0.4 percent, also the largest gain since February. So-called “real" consumer spending fell 0.1 percent in June, and the July advance was an encouraging sign after consumption growth slowed by the most in a year during the second quarter. Weak consumer spending limited economic growth to a 1.7 percent annual rate in the April-June quarter. Data on housing, job growth, and retail sales suggest the economy performed better early in the third quarter. “Real" consumer spending last month was lifted by tame inflation pressures. A price index for personal spending was flat after rising 0.1 percent in June. In the 12 months ending in July, the PCE index rose 1.3 percent—the smallest increase since October 2009—after increasing 1.5 percent in June. In July, households increased spending while income increased 0.3 percent. Income excluding inflation and taxes also increased 0.3 percent last month. With spending slightly above income growth, the saving rate fell to 4.2 percent in July from 4.3 percent the previous month.
