US consumer spending sputters in July

US consumer spending sputtered in July amid weak income growth, according to Commerce Department data released on Friday that raised questions about the strength of the economy. The disappointing report, after a series of negative economic data, came amid speculation that the Federal Reserve will begin reeling back its stimulus program soon. Consumer spending, the main growth driver in the US economy, edged up only 0.1 percent in July, the Commerce Department reported. That came in well below the strong June growth of 0.6 percent, revised upward from an initial 0.5 percent estimate. Personal income also rose only 0.1 percent in July, slowing from June\'s growth of 0.3 percent. Wages and salaries, the main factor in personal income, fell 0.3 percent in July after rising 0.4 percent in June. The monthly consumer spending figure was much weaker than the 0.3 percent consensus forecast; the income reading matched analyst expectations. \"The consumption and income numbers add to a roster of weaker-than-expected July data,\" Barclays analyst Peter Newland said. \"Taken alongside declines in capital goods shipments and new home sales and the soft tone to the July employment report, a picture of a loss of momentum at the start of Q3 seemingly becomes apparent, something our GDP tracking estimate captures: our Q3 estimate now stands at just 1.6 percent.\" Second-quarter US economic growth on Thursday was revised upward to an annual rate of 2.5 percent, up from an initial estimate of 1.7 percent. Consumer prices continued to rise just slightly in July as the economy slowly recovers from the Great Recession that ended four years ago. The price index for personal consumption expenditures ticked up 0.1 percent in July. The closely watched core PCE prices, excluding food and energy, rose 0.1 percent, half the increase of the previous month. Compared with a year ago, the key core price index was up 1.2 percent, well below the Federal Reserve\'s 2.0 percent target. Consumers still saved at the same pace despite falling wages. The personal savings rate held steady at 4.4 percent in July, the same as in June. Robert Brusca, chief economist at FAO Economics, called the spending and income report \"a bit of a disaster.\" Brusca pointed to a July fall in consumer spending on services at a 1.6 percent annual rate, bringing the decline over three months to a 1.0 percent rate. With the services sector the growth engine for jobs in the United States, \"these are disastrous numbers if you are hoping for jobs growth,\" he said. The new data cast a cloud over speculation that the Federal Reserve will begin to reduce its $85 billion a month bond-buying program this year. Concerns about the strength of the major economic indicators in the third quarter could convince the Fed to delay the move, which could come as soon as its September 17-18 monetary policy meeting. The Fed has said any decisions to taper the stimulus program, called quantitative easing, would be dependent on data showing continued broad improvement in the economy. Jim O\'Sullivan, chief US economist at High Frequency Economics, said the latest data was unlikely to stop the Fed from starting the tapering process at next month\'s meeting. With inflation tame amid tepid growth, the central bank has been focused on bringing down the high unemployment rate and spurring jobs growth. The Fed\'s tapering move \"is being triggered in large part by positive labor market data,\" O\'Sullivan said. Claims for unemployment benefits, a proxy for layoffs, fell last week and have been trending lower for months. The US unemployment rate dropped to a four-year low of 7.4 percent in July, from 7.6 percent in June, despite weak jobs growth of 162,000. The government is due to report August jobs data next Friday, considered the most important economic indicator ahead of the September Fed meeting.