U.S. consumer spending grew 0.6% in July, a healthy gain that suggests American shoppers are driving the economy forward.
The Commerce Department also said Friday that personal incomes rose just 0.1%, the smallest gain in 10 months. With spending ahead of incomes, the savings rate fell to 7.7%, the lowest since last November, but still a solid figure by historic standards.
With trade war tensions discouraging business investment and cutting into exports, consumers are increasingly important to the U.S. economy. Household spending was the principal driver of growth in the April-June quarter, when it increased by the most in five years.
An inflation measure in the report increased 0.2% in July and 1.4% from a year earlier, evidence that inflation remains mild. Excluding food and energy, core prices rose 0.2% in July and 1.6% from a year ago.
The anemic income increase follows a string of healthy gains this year that have helped fuel Americans’ ability to spend. In July, wages and salaries grew more slowly than in recent months and income from interest payments fell sharply. Wages and salaries paid by manufacturing firms also dropped.
The inflation figures fell short of the Federal Reserve’s 2% target, as they have nearly continuously since the Fed set its target in 2012. The Fed targets a modest amount of inflation as a cushion against deflation, a destabilizing drop in prices and incomes.
Federal Reserve Chairman Jerome Powell has cited low inflation as one reason the central bank cut short-term interest rates at its meeting last month. Most economists forecast additional rate cuts this year.
Consumers are keeping the economy afloat but growth has still slowed this year, to a 2% annual pace in the second quarter from 3.1% in the first three months of the year.