WRAPUP 4-U.S. consumer spending gain strongest in 4 months

* Consumer spending rises 0.4 percent in July

* Incomes edge up 0.2 percent

* Saving rate slips to 5.9 percent, but still high
(Updates with closing markets)

By Lucia Mutikani

WASHINGTON, Aug 30 (BestGrowthStock) – U.S. consumer spending rose
in July at the strongest pace in four months, supported by a
small gain in incomes that offered hope that consumers will be
able to keep contributing to a modest economic recovery.

Analysts said the 0.4 percent increase in spending reported
by the Commerce Department on Monday was a relief after a raft
of weak data for July and helped ease fears the economy was
sliding back into recession.

“We are still of the opinion that there is a 30 percent
chance of a double-dip (recession) but it’s definitely not our
baseline forecast,” said Scott Hoyt, director of consumer
economics at Moody’s Economy.com in West Chester, Pennsylvania.
“When consumer spending is growing it’s hard to get a double
dip.”

The increase in spending was a touch above expectations in
financial markets for a 0.3 percent rise. Spending, which was
flat in June, was supported by a 0.2 percent gain in incomes
and households’ dipping into their savings.

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Consumer spending graphic: http://link.reuters.com/zuk28n

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Investors worried, however, that stubbornly high
unemployment would continue to crimp spending and sold U.S.
stocks, driving the Dow Jones industrial average (.DJI: ) down to
just a couple of points away from the psychologically
significant 10,000 mark.

Prices for safe-haven government bonds (US10YT=RR: ) rose,
recouping some of Friday’s steep losses, while the U.S. dollar
fell against the yen (JPY=: ) as investors saw as inadequate
steps by authorities in Tokyo to curb the Japanese currency’s
recent strong rise.

Data so far has suggested the U.S. economy’s recovery from
the longest and deepest recession since the 1930s probably
slowed further in the third quarter of the year.

The government on Friday lowered its estimate of
second-quarter growth to a 1.6 percent annual rate from 2.4
percent, although the figure on consumer spending was revised
higher.

A closely watched employment report for August due on
Friday is expected to paint yet another grim picture of the
labor market, the Achilles heel of the recovery. According to a
Reuters survey, nonfarm payrolls fell 100,000 this month after
shrinking 131,000 in July.

JOBS KEY

The deluge of weak data led Federal Reserve Chairman Ben
Bernanke to reiterate on Friday the U.S. central bank’s
commitment to spur the recovery should the outlook
deteriorate.

The sickly economy is damaging President Barack Obama’s
popularity among Americans unhappy with a 9.5 percent jobless
rate. It could see the Democratic Party lose control of
Congress to the Republicans in November’s mid-term elections.

Obama on Monday said he and his economic team had discussed
additional steps to promote economic growth, including looking
at tax cuts for businesses and the middle class. He implored
lawmakers to pass a stalled bill to help small businesses.

“I ask senate Republicans to drop the blockade. I know we
are entering election season but the people who sent us here
expect us to work together to get things done and improve this
economy,” Obama said at the White House.

Republicans argue the Democrats’ policies have failed to
fix the economy and the focus should be on cutting public
spending. Job creation is critical for the recovery as consumer
spending accounts for 70 percent of economic activity.

Last month, consumer spending adjusted for inflation
increased 0.2 percent after edging up 0.1 percent in June, the
Commerce Department said. Real spending on goods rebounded 0.4
percent, while expenditure on services increased 0.2 percent.

Wages and salaries rose at a $22 billion annual rate last
month, helping fuel the rise in incomes, after shrinking at an
$8 billion rate in June. But real disposable income fell 0.1
percent, the first decline since January.

Although the saving rate slipped to 5.9 percent from 6.2
percent the previous month, analysts said the level still
indicated that consumers remained wary of spending.

“Households are intent on paying down debt and putting
their finances on a firmer footing,” said Paul Dales, a U.S.
economist at Capital Economics in Toronto.

“This is good for the economy in the medium term but it’s
bad for near-term growth. Overall the U.S. economy cannot rely
on households to lift it out of its current funk.”

The report showed the personal consumption expenditures
price index, excluding food and energy, was up 1.4 percent in
the 12 months to July, unchanged from June. The index is a key
inflation measure monitored by the Fed.

“The sluggish economy and high unemployment should nudge it
modestly lower in coming months,” said Sal Guatieri, a senior
economist with BMO Capital Markets in Toronto. “We see it
moving further below the Fed’s longer-range forecast of 1.7
percent to 2.0 percent, thus paving the way for renewed
quantitative easing (of monetary policy) by year-end.”
(Editing by James Dalgleish)

WRAPUP 4-U.S. consumer spending gain strongest in 4 months