- Jennifer Lee, senior economist at BMO Capital Markets
US consumer spending rose a bit in July as households purchased more automobiles, adding to further evidence of strength in the economy that could keep the door open to a Fed interest rate hike this year. The Commerce Department reported consumer spending—the lifeblood of the US economy, which accounts for more than two-thirds of US economic activity, climbed 0.3% following an upwardly revised 0.3% increase in June. Meanwhile, personal income, reflecting Americans' pre-tax earnings from salaries and investments, rose 0.4%, replicating the gains of the previous three months. The price index for personal consumption expenditures, the central bank's preferred inflation gauge, inched up 0.1% from June and 0.3% from a year earlier. Core prices, which excludes food and energy costs, ticked up 0.1% from June and 1.2% from a year earlier. July marked the 39th straight month in which prices have undershot the Fed's 2% annual target. Other data suggest underlying strength in the US economy. Gross domestic product expanded 3.7% in the second quarter. Retail sales increased healthily in July, and the housing market is showing momentum, with robust pickups in sales of existing and new homes last month. At the same time the labour market continues to show strength. The latest data is likely to influence debate within the Fed about when and how quickly to hike short-term interest rates.
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