Spending edges up in July, but consumers remain a concern

WASHINGTON -- Consumer spending edged up in July with help from the popular cash-for-clunkers program, but household incomes, the fuel for future spending increases, were flat. Another report said consumer confidence fell to its lowest in four months in August..

Consumer spending is the big question mark as the economy struggles to emerge from the recession. Economists worry that households hurt by rising unemployment, weak income growth and depleted investments will not provide the support the economy needs to rebound to sustained growth.

The Commerce Department said Friday that consumer spending rose 0.2% in July, matching economists' expectations. Personal incomes were unchanged last month, a weaker showing than the expected 0.2% gain.

With incomes flat in July as spending rose, the personal savings rate dipped slightly to 4.2% from 4.5% in June. The savings rate was 2.6% a year ago.

Economists expect the savings rate to rise in coming months to around 6% as workers try to rebuild depleted nest eggs. The process of rebuilding savings is one of the factors expected to depress consumer spending and weaken the broader recovery.

The modest rise in spending last month followed a 0.6% jump in June, a gain driven by a surge in gasoline prices. Adjusting for inflation, spending rose 0.2% in July, and 0.1% in June.

The slight rise in spending reflected a 1.3% jump in purchases of durable goods such as cars, a gain propelled by the clunkers program that started at the end of July. Purchases of non-durable goods such as clothing actually fell 0.3% last month.

The unchanged reading for personal incomes followed large swings in the previous two months that reflected payments to individuals from the government's $787 billion economic stimulus program. Those payments pushed incomes up 1.4% in May and their absence in June caused incomes to fall 1.1%.

Incomes have taken a beating during the recession as employers slashed payrolls and forced workers to take unpaid days off to hold down wage costs. In addition, households with sufficient income to hit the shopping malls have trimmed their purchases and boosted savings to cope with a severe financial crisis which sent the stock market into a nosedive last year.