WASHINGTON (MarketWatch) — Helped by higher incomes and low inflation, Americans bought more furnishings for their homes in July and also ratcheted up spending at hotels and restaurants.
Consumer spending rose 0.3% last month, the Commerce Department reported Thursday. Outlays for June were revised higher.
Households are in the best financial shape in years, buoyed by low unemployment, rising incomes and a surging stock market. Incomes, for example, climbed 0.4% in July to mark the biggest gain in five months.
The pace of inflation, meanwhile, was little changed in July. The PCE index, the Federal Reserve’s preferred inflation gauge, was rose 0.1%. A core rate that strips out food and energy rose by the same amount.
The 12-month rate of inflation, meanwhile, was unchanged at 1.4%. Inflation rate had jumped to five-year high of 2.2% earlier in the year before tapering off.
The relaxation in price pressures has spurred renewed debate inside the Federal Reserve about whether inflation has eased temporarily. Some senior Fed officials believe the central bank should raise interest rates more slowly if inflation remained muted.
Other central bank officials argue the low jobless rate and steadily growing economy will eventually push inflation higher.
The one caveat in the July spending report: The U.S. savings rate fell to 3.5% from 3.6%, the second lowest level since 2008.
Americans are unlikely to keep dipping into their savings to pay for what they buy, suggesting somewhat slower spending in the months ahead unless incomes rise even faster.
U.S. futures markets pointed to a higher opening for the Dow Jones Industrial Average