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Incomes weakest in nearly 2 years
Personal incomes edged up just 0.1%, well below forecasts, but consumer spending rebounded.
August 30, 2004: 10:22 AM EDT

NEW YORK (CNN/Money) - Consumer spending rebounded in July even as personal incomes grew at the weakest pace in nearly two years, the government reported Monday.

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But analysts said purchases of autos helped lift spending in July, fueled by heavy incentives from automakers, and that spending was unlikely to post further solid increases if income growth remains weak.

The Commerce Department said Americans' personal incomes rose a scant 0.1 percent in July -- the slowest growth since November 2002 -- compared with a 0.2 percent gain in June. Economists surveyed by Briefing.com had forecast an increase of 0.5 percent.

At the same time, spending by individuals jumped 0.8 percent in the month, compared to a revised 0.2 percent decline in June. Consumer spending is watched closely since it fueled about two-thirds of the nation's economy. Economists had forecast a 0.7 percent gain for July.

The revision in June spending was a big improvement from the 0.7 percent decline in the department's original report.

The pickup in spending came mainly from purchases of so-called durable goods meant to last three years or more such as cars and appliances. Spending on those items jumped 4.1 percent, following a 3.2 percent decline in June.

But spending on nondurable goods edged up just 0.2 percent, the same rate as in June, while spending on services climbed 0.4 percent following a 0.3 percent rise in June.

"Trends show a sharp surge on auto spending in July but little strength elsewhere," said Robert Brusca of FAO Economics in a note to clients Monday. "Most disturbing is the ongoing sluggishness for services. Demand there is hovering around (annual) gains of 2 percent. That won't create many jobs."

Brusca and other economists said that the strength in spending in the face of weak growth in income can't be sustained.

"We thought the increase in compensation rates and hours worked would help push up income although we had limited employment growth in July. But that does not seem to have happened," BMO Financial's Chief Economist Tim O'Neill told Reuters. "Obviously you can't continue to get that kind of spending growth if you don't see some income growth."

One piece of good news for financial markets was that measures of prices paid by consumers showed essentially no change in July compared with June.  Top of page


-- Reuters contributed to this report




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.