US: Consumer spending rebounds, calms recession fears


US consumer spending rose at its fastest pace in five months in July, backing views the economy was not falling back into recession, although pending sales of previously owned homes fell. The Commerce Department said on Monday consumer spending increased 0.8 per cent on strong demand for motor vehicles, after slipping 0.1 per cent in June. Economists had expected spending, which accounts for about 70 per cent of US economic activity, to rise 0.5 per cent.
When adjusted for inflation, spending rose 0.5 per cent last month, the largest gain in 1-1/2 years and the first increase since April. The spending data was the latest to suggest the economy started the third quarter with some strength after growth almost stalled in the first half of the year. It gave hope that output would continue to expand, though at a moderate pace.
“If anybody was concerned about this recession risk people were taking about, this personal spending number seems to be another point against that recession argument,” said Jeffrey Greenberg, an economist at Nomura Securities in New York. “It seems at least through July, the economy was not too poor.” But the risks of a new recession have risen following a sharp drop in stock prices and the erosion of consumer sentiment. Those risks were underscored by a separate report showing pending home resales fell 1.3 per cent last month.
The housing market is being choked by an oversupply of properties and is one of the economy’s weak spots. Pending home sales lead existing home sales by a month or two and the decline in contracts signed pointed to a fall in August sales.