Consumers open wallets wider in July

WASHINGTON — Americans spent at the fastest pace in five months in July after earning a little more. The increase in income and consumer spending could help boost an economy mired in subpar growth.

Consumer spending rose 0.4 percent in July from June, the Commerce Department said Thursday. That followed no change in June and a slight decline in May.

Income grew 0.3 percent, matching the gains from May and June. Americans also earned 0.3 percent more after paying taxes.

The savings rate after taxes dipped to 4.2 percent in July. That's down slightly from 4.3 percent in June, the highest in a year.

Paul Dales, senior U.S. economist at Capital Economics, said that the rise in spending showed "there is still life in American consumers." But he cautioned that higher gasoline prices and a decline in consumer confidence in August could dampen spending in coming months.

So far that hasn't happened. In a separate report, a group of 18 retailers ranging from discounter Target to department-store chain Macy's reported August sales on Thursday that rose 6 percent — the industry's best performance since March — according to trade group International Council of Shopping Centers.

The strong sales reports come two days after a private research firm said consumer confidence in August fell to its lowest level since November 2011.

Hiring picked up in July and could see further modest gains in August. The number of Americans seeking unemployment benefits was unchanged last week at a seasonally adjusted 374,000, the Labor Department said in a separate report Thursday.

The economy grew at a tepid annual rate of 1.7 percent in the April-June quarter, the government said Wednesday. Many economists expect growth will hover around 2 percent in the second half of the year. Growth at that level is far below what is needed to rapidly lower the unemployment rate.

Consumers paid no more for their purchases in July than June, the report showed. Excluding food and energy, prices over the past year are up just 1.6 percent, well below the Federal Reserve's 2 percent target for inflation.

In its latest survey of business conditions around the country, the Federal Reserve reported Wednesday that the U.S. economy grew moderately in July and early August with stronger retail sales helping to offset weakness in manufacturing.