Consumer Spending Up in July; Report Suggests Recovery Is Gaining
The Commerce Department reported yesterday that consumer spending in July rose by $59.7 billion, or 0.8 percent, compared with $44.5 billion, or 0.6 percent, in June, the largest increase in four months. The department's Bureau of Economic Analysis also said personal disposable income increased $120.3 billion, or 1.5 percent, up from a $30.6 billion, or 0.4 percent, increase one month earlier.</br></br>Consumer spending accounts for roughly two-thirds of the nation's economy, and economists viewed yesterday's news as more support for recent reports that suggest the once-sluggish pace of the economy is picking up.</br></br>"Consumers are really the locomotive pulling the rest of the country forward, and the fuel for that locomotive at this moment is the tax cut and the fuel derived from mortgage refinancing," said Sung Won Sohn, chief economic officer for Wells Fargo & Co. in Minneapolis.</br></br>Economists attributed the increase in consumer spending in large part to the third tax cut by President Bush and Congress since 2001, but they also cited spending on new cars spurred by generous rebates, as well as continued mortgage refinancing because of low interest rates.</br></br>But Richard Berner, chief U.S. economist for Morgan Stanley in New York, warned against giving too much weight to the idea that consumer spending has been driven by cash generated by mortgage refinancings driven by low interest rates. "There's no mistaking the fact that lower mortgage payments have helped some consumers," he said, "but not all consumers have refinanced their mortgages, and not all consumers have mortgages.