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Consumer Spending Up in July

Spending by American consumers grew last month at twice the rate it did in June, suggesting that the economy may not be slowing as drastically as some economists had forecast.

Personal income also rose in July, although not as much as spending did. And a widely watched measure of consumer inflation indicated that the pace of price increases may be easing somewhat.

All together, the data provided some encouraging evidence that economic expansion may be slowing, not stalling, on its way to the “soft landing" that policymakers like the chairman of the Federal Reserve, Ben S. Bernanke, are hoping for.

The Commerce Department reported today that total personal spending rose 0.8 percent in July, adjusted for seasonal factors -- the sharpest increase since January. By contrast, personal income rose 0.5 percent in July, largely in line with the pace of the last several months.

Along with better-known gauges of inflation like the Consumer Price Index, the Federal Reserve pays attention to one derived from the monthly consumer spending figures that is known as the core personal consumption expenditure index. The index, which excludes volatile food and energy prices, registered an increase of just 0.1 percent in July, the smallest so far this year.

Still, the core index was 2.4 percent higher in July than a year earlier; the Fed considers 2 percent annual inflation to be at the high end of what the economy can comfortably tolerate.

Wall Street seemed to take today's statistics in stride, as investors bid stock prices up marginally in early trading. The low inflation data in the report was seen as particularly encouraging because the Fed has said it may be forced to quickly resume its paused program of interest-rate increases if any sign appears that prices are shooting up.

At its Aug. 8 meeting of the Fed's policy-setting committee, members expressed concern that inflation was still running high, according to minutes of the meeting released this week. The committee said its decision to hold its overnight lending rate steady at 5.25 percent was “a close call," and warned that “additional firming could well be needed," meaning another rate increase.

The Commerce Department said Wednesday that the United States economy grew more quickly in the second quarter than initially estimated, and that broadly speaking, inflation was slightly lower.

“It would appear, therefore, that some of the more pessimistic forecasts being bandied about for third quarter G.D.P growth will be revised up in coming days," Joshua Shapiro, chief United States economist with MFR, wrote in a report today.

Though the economic statistics reported this week have tended to be more upbeat than the generally gloomy economic assessments heard lately, it remains to be seen whether inflation will remain in check through an orderly decline in the growth rate.

“It'd be great to see the leading indicators of inflation ease more definitively, which would open up more aggressive policy options for the Fed," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute.

Indeed, if inflation continues to slow, the central bank may eventually begin to cut interest rates instead of raise them.

“Today's report was a small step in the right direction," Mr. Achuthan added.