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Saturday, August 31, 2002

Consumer spending up, income stalls




By Jeannine Aversa
The Associated Press

        WASHINGTON — Motivated by free financing on cars and merchandise discounts, consumers splurged in July, ratcheting up their spending by the largest percentage in nine months.

        At the same time, though, personal income growth stalled, a potential pothole for the struggling economic recovery.

        Consumer spending in July rose by a brisk 1 percent, twice as fast as the 0.5 percent increase posted the month before, the Commerce Department reported Friday.

        But Americans' incomes, which includes wages, interest and government benefits, were flat in July, compared with a sizable 0.7 percent advance in June.

        The weakness in July reflected the stagnant job market. Wages and salaries actually dipped by 0.2 percent.

        Income growth is the fuel for consumer spending, which accounts for two-thirds of all economic activity in the United States.

        In the past several months, personal incomes have grown solidly.

        If July's weakness were to persist in the months ahead, consumers would surely scale back their spending, slowing the economy's recovery, economists said.

        A dramatic retrenchment — something most economists think is remote but aren't ruling out — would derail it, they said.

        “If wages and jobs aren't going anywhere and incomes stop growing — if that turned out to be the trend — that's a scenario in which you would have to start worrying about the old double-dip recession,” said Bill Cheney, chief economist at John Hancock.

        Paltry job growth in July kept the nation's unemployment rate stuck at 5.9 percent.

        Some economists believe future job growth won't be strong enough to prevent unemployment from rising.

        They predict the jobless rate may move to 6.3 percent or 6.5 percent by the fall.

       



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