Data published today showed US consumer spending rebounded sharply in July to erase the disappointment of June and bolster hopes the US economy has recovered from its recent soft spot.
The dollar was a touch stronger after the news, edging to $1.2020 against the euro as dealers digested the implications for third-quarter US growth and further Federal Reserve interest rate rises.
Personal spending rose 0.8 per cent, more than making up for a revised 0.2 per cent fall in June, the Commerce Department said. The improvement in consumption was actually even larger since June's spending had been initially reported as a 0.7 per cent decline.
But personal income advanced at a more modest pace than expected, posting a 0.1 per cent rise compared with a 0.2 per cent gain the previous month. July's advance was the weakest reading since November 2002.
In striking evidence that US inflation is well under control, both the price index for consumer purchases and core prices, one of the Federal Reserve's favourite measures of inflation, were unchanged last month.
Spending on durable goods, which include costly items such as cars, jumped 4.1 per cent, erasing June's revised 3.2 per cent drop. This had been initially reported as a 5.9 per cent fall. Non-durable goods spending advanced 0.2 per cent and June's previously reported 0.3 per cent decline was revised to show a 0.2 per cent rise.
A rebound in spending had been heralded by a pick-up in both car and retail sales last month, and analysts see this laying the foundation for higher growth in the second half of the year after the economy hit a rut between April and June.
But economists have remained wary after retail giant Wal-Mart lowered its August sales forecast due to disappointing back-to-school demand and they will scrutinise August auto sales, out on Wednesday, for evidence households have kept up spending.