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Consumer Spending, Personal Income Both Increased in July

By Jeremy W. Peters

Spending by U.S. consumers grew in July at twice the rate it did in June, suggesting that the economy may not be slowing as suddenly as some economists had thought.

Personal income also rose in July, although not as much as spending did. And a widely watched measure of consumer inflation indicated that the pace of price increases may be easing somewhat.

All together, the data provided some encouraging evidence that economic expansion may be slowing, not stalling, on its way to the soft landing that policy makers like Ben S. Bernanke PhD ’79, chairman of the Federal Reserve, are hoping for.

The Commerce Department reported Thursday that total personal spending rose 0.8 percent in July, adjusted for seasonal factors — the sharpest increase since January. By contrast, personal income rose 0.5 percent in July, largely in line with the pace of the last several months.

Along with gauges of inflation like the Consumer Price Index, the Federal Reserve pays attention to one derived from the monthly consumer spending figures known as the core personal consumption expenditure index.

The index, which excludes volatile food and energy prices, registered an increase of just 0.1 percent in July, the smallest this year.

Still, the core index was 2.4 percent higher in July than a year earlier; the Fed considers 2 percent annual inflation to be at the high end of what the economy can comfortably tolerate.

Wall Street seemed to take the July statistics in stride, as investors left stock prices virtually unchanged from Wednesday’s close.

The data in the report showing low inflation was seen as particularly positive because the Fed has said it may be forced to quickly resume interest rate increases if any sign appears that prices are shooting up.

At the Aug. 8 meeting of the Fed’s policy-setting committee, members voted to leave interest rates unchanged at 5.25 percent. But, according to minutes of the meeting released this week, some members expressed concern that inflation was still running high.