Spending gives hope lull may be ending

WASHINGTON - Shoppers spent more freely in July, raising hopes that June's economic lull could be coming to an end.

The Commerce Department reported Monday that consumers, key shapers of U.S. economic activity, boosted spending by 0.8 percent in July from the previous month. Their appetite to spend was led by a rebound in demand for big-ticket goods, such as cars, helped by buyers' incentives.

The latest snapshot of buyer behavior marked an improvement from June, when consumers cut spending by 0.2 percent. High energy prices and a sluggish job market weighed on consumers' willingness to spend, part of what Federal Reserve Chairman Alan Greenspan described as a "soft patch" in the economy.

Incentives on cars and discounting of other goods helped to bring buyers back in July. "Consumers know a deal when they see one and know when to wait for one to show up," said Joel Naroff, president of Naroff Economic Advisors.

The 0.8 percent rise was slightly better than the 0.7 percent increase some economists had expected.

Americans' incomes, the fuel for future growth, nudged up 0.1 percent in July, following a 0.2 percent rise in the previous month. July's income growth fell short of some analysts' calls for a 0.5 percent gain. The 0.1 percent rise matched an increase for November 2002 and was the smallest advance since income growth was flat in August 2002.

Income growth was held back by a decline in government payments - mainly a reduction in the federal matching rate for Medicaid reimbursements, which had been boosted by last year's tax cuts. Wages and salaries, unchanged in June, rose by 0.4 percent in July.

The spending and income figures are not adjusted for price changes.

On Wall Street, the report failed to buoy investors. The Dow Jones industrials lost 72.49 points to close at 10,122.52.

President Bush and his Democratic opponent, John Kerry, have sparred frequently over the economy's health and the availability of jobs, both spotlighted issues in the presidential campaign.

"George Bush's economic policies have hurt the middle class while creating record deficits," the Kerry campaign said in a statement.

The economy grew at a 2.8 percent annual rate in the April-to-June quarter of this year as high energy prices took a toll on economic activity.

That was more sluggish than first thought, marked a slowdown from the 4.5 percent growth rate in the prior quarter, and provided fresh evidence that the economy had a rough go in the early spring and late summer.

Economists believe, however, that the economy is picking up its pace in the July-to-September quarter, with estimates for growth ranging from a rate of around 3 percent to just topping a 4 percent pace.

The Federal Reserve boosted short-term interest rates for a second time this year on Aug. 10 in an effort to ensure that inflation does not become a problem for the economy.