Consumers rebounded in July to boost spending by the most in five months. The increase is likely to ease fears that the U.S. economy is on the verge of another recession.
The Commerce Department said Monday that consumer spending rose 0.8 percent in July. That followed the first decline in spending in 20 months.
Personal incomes increased 0.3 percent last month. That's slightly higher than the modest 0.2 percent in June, the weakest growth in seven months.
The first look at spending in the second half of the year gave Wall Street an early lift. Stock futures rose after its release. It added to positive reports that Hurricane Irene didn't do as much damage as feared.
Consumer spending is important because it accounts for 70 percent of economic activity.
Strong spending in July is the latest sign that the economy rebounded this summer after anemic growth in the first half of the year. The government reported Friday that the economy expanded at an annual rate of just 1 percent in the April-June period, slower than a previous estimate. That lowered the annual rate for the first six months of the year to just 0.7 percent, the weakest growth in the two years since the recession official ended.
Nine of the past 11 recession since the end of World War II have been preceded by a period of growth of 1 percent or less.
July is off to a good start. The economy added 117,000 net jobs in July, twice the number added in each of the previous two months. Spending on retail goods rose faster last month than in any month since March. U.S. automakers rebounded last month to boost factory production by the most since the Japan crisis.
Consumer spending rose at a faster pace than income in July. The personal savings rate dropped to a four-month low of 5 percent, down from 5.5 percent in June.
The increase in spending was led by a 1.9 percent jump in purchases of durable goods, products such as autos and appliances that are expected to last at least three years. Spending on non-durable goods rose 0.7 percent. However, the purchase of services, the biggest spending category, fell 0.7 percent. Services include everything from haircuts to airline tickets.
Economists expect slightly better growth in the second half of the year of roughly 1.5 percent to 2 percent. But that wouldn't be enough to make a noticeable dent in the unemployment rate, which was 9.1 percent in July.
In a speech Friday, Federal Reserve Chairman Ben Bernanke proposed no new steps to boost the economy. But he did say the Fed would expand its September meeting to two days to allow a fuller discussion.
Investors hope the Fed will announce another round of Treasury purchases after that meeting. But economists said interest rates are already so low that there is little more the Fed can do to boost the economy.