The Bureau of Economic Analysis reported that consumer spending grew 0.8 percent in July, rebounding from the 0.1 percent decline in June. It was the strongest increase in consumption since February, led by durable goods spending (up 1.9 percent). Spending on durables had been down for four straight months prior to July. Nondurable goods spending was up 0.7 percent, reversing a two-month decline.
Meanwhile, personal income was up 0.3 percent. Manufacturing wages and salaries rose from $712.3 billion (at annual rates) in June to $715.9 billion in July. Manufacturing compensation had fallen by $0.9 billion in June, but the larger trend has been a positive one, with wages and salaries up $28.8 billion since December 2010.
The current savings rate is 5 percent, down from 5.5 percent in June. In terms of prices, consumer goods are 4.7 percent more expensive than one year ago, led mostly by nondurables (up 7.2 percent). Durable goods prices are actually down 0.2 percent year-over-year. For all consumer items, prices are up 2.8 percent, or 1.6 percent if food and energy costs are excluded.
These numbers suggest that consumers have resumed spending again – a good trend to have moving into the second half of this year. Interestingly, it comes on the heels of growing consumer pessimism about the overall economy. On Friday, the University of Michigan and Thomson Reuters released their latest Consumer Sentiment Index, which fell from 63.7 in July to 55.7 in August. This mirrors similar statistics from the Conference Board, with both at depressed levels. Moving forward, consumers will need to get more confident– which they will if the economy and incomes start to improve – in order for spending growth to help lift overall economic growth.
Chad Moutray is chief economist, National Association of Manufacturers.