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Consumer spending rebounds in July
Published in Saudi Press Agency on 31 - 08 - 2007


Americans returned to the malls in July
after taking a breather in June, although worries about the
future could make the rebound short-lived, according to AP.
The Commerce Department reported Friday that consumer
spending rose by 0.4 percent in July, double the June
increase. The spending was supported by a solid 0.5 percent
rise in incomes, the best showing in this area in four
months.
The gain in spending was right in line with expectations,
while the increase in incomes was double what analysts had
expected. However, economists cautioned that the July
increases could be temporary given recent weakness in
consumer confidence caused by a prolonged slump in housing
and the past several weeks of financial market turbulence.
In another strong report, the Commerce Department said
that orders to factories jumped by 3.7 percent in July,
even better than the 3.3 percent increase that had been
expected. The increase, which followed three months of
lackluster gains, was led by an 11 percent jump in demand
for transportation goods, including the biggest leap in
orders for cars in more than four years.
The report on factory orders showed that demand for
big-ticket durable goods rose by 6 percent, slightly better
than the 5.9 percent estimate the government made last
week. Demand for nondurable goods, items such as gasoline
and food, was up 1.3 percent in July.
Investors are hoping that the Federal Reserve will step in
to deal with the financial market turmoil by delivering a
series of reductions in the federal funds rate, the
benchmark rate for millions of consumer and business loans.
In a speech Friday at a conference in Wyoming, Federal
Reserve Chairman Ben Bernanke said the central bank
«stands ready to take additional actions as needed to
provide liquidity and promote the orderly functioning of
markets.
The Fed got good news in advance of Bernanke's speech in
the spending report, which showed that a key inflation
gauge tied to consumer spending which excludes food and
energy rose by just 0.1 percent in July. This measure of
core inflation had been up 0.2 percent in June. For the
year ending in July, core inflation by this measure is up
just 1.9 percent _ within the Fed's preferred 1 percent to
2 percent comfort zone and well below the 2.5 percent
year-over-year increase seen in February.
Investors are hoping that this retreat in inflation
pressures will give the Fed the leeway to cut interest
rates to protect the economy against the adverse impacts
from housing and financial market turmoil.
The 0.5 percent increase in incomes in July was the best
increase since a 0.8 percent jump in March. But there are
worries that the slowing economy could hurt job creation in
coming months. The government reported on Thursday another
increase in the number of newly laid-off workers filing for
unemployment benefits, pushing the weekly total to the
highest level since April.
The 0.4 percent rise in consumer spending was the best
showing since a 0.6 percent gain in May. However, if
incomes falter and confidence sags, those gains could
quickly evaporate. Personal spending is closely watched
because it accounts for two-thirds of total economic
growth.
After adjusting for inflation, the gain in spending was a
slightly lower 0.3 percent in July, but that was still the
best showing since a similar 0.3 percent rise in April.
The personal savings rate edged up to 0.7 percent in July,
slightly above the 0.5 percent savings rate of June.


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