Spending outpace income gains in July

The Commerce Department reported Monday that personal income, which includes wages, interest and government benefits, grew by 0.3 percent last month, matching many anaylsts' predictions.

At the same time, spending rose by a brisk 0.6 percent, slightly faster than the 0.5 percent increase many analysts were anticipating. The increase was the biggest in five months.

In June, Americans' incomes and spending grew by 0.4 percent each.

Disposable income – what is left after taxes – rose in July by 0.3 percent, matching the gain posted the month before.

All that spending drove down the personal savings rate – savings as a percentage of after-tax income – to a negative 0.2 percent in July, the lowest monthly rate ever. In June, the rate stood at a positive 0.1 percent.

Still, July's rate may not provide a clear picture of savings, economists have said. That's because the calculation doesn't take into account gains realized from such things as rising stocks and higher real-estate values.

The Federal Reserve has boosted interest rates six times in the last 14 months to slow economic growth and keep inflation under control. The Fed's rate increases are designed to make borrowing more expensive and cool demand for such big-ticket items as cars and homes.

Last week, the Fed decided not to raise interest rates for a seventh time but held the door open to possible action in the future.

Monday's report showed that Americans' spending on durable goods – cars and other costly manufactured goods expected to last at least three years – zoomed ahead by 0.8 percent in July. That followed a 0.1 percent drop in June.

Spending on nondurable goods, such as food and fuel, grew by a solid 0.5 percent last month, down from a 0.7 percent increase in June.

On Friday, the government reported that consumer spending, which accounts for two-thirds of all economic activity, cooled in the April-June quarter, rising at a 2.9 percent annual rate, the slowest pace in three years. Monday's report suggests that consumers opened the third quarter by spending robustly.

In July, Americans' wages grew by a solid 0.5 percent, following a strong 0.6 percent gain the month before.