Amid Concerns of a Double-Dip Recession, Consumer Spending rises in July

Posted by on Aug 30, 2010 | No comment

Finally there was good news on the economic front as the U.S. government reported that consumer spending rose in the month of July by an unexpected amount. The news comes amid fears that the U.S. economy may be slipping into another recession. Certainly, the economic data that came out prior to today pointed towards a slowdown in the second half of 2010. However, the positive consumer spending data should boost confidence among investors.

The U.S. Commerce Department today reported that consumer spending rose by an unexpected 0.4% for the month of July, the most since March. Commenting on the surprising data, Rebecca Blank, U.S. Commerce Under Secretary for Economic Affairs said that consumer spending adjusted for inflation continues to increase at a modest pace. Blank said that the consumer spending data for the month of July shows that the U.S. economy continues to grow as consumer spending accounts for 70% of the GDP.

It may be recalled that the U.S. economy registered strong growth in the first quarter of 2010, continuing its recovery from the fourth quarter of 2009. Many felt back then that the strong GDP growth pointed to an economic recovery. However, the growth in the economy did not result any job creation or an increase in consumer spending. As a result, the growth in the second quarter of 2010 again slowed down. Since then investors have been worried about the U.S. economy experiencing a double-dip recession.

But, July’s consumer spending data should now give investors some confidence in the economy. The better-than-expected data shows that consumers are feeling more confident about the future. Also, the positive consumer spending data should encourage businesses to hire more.

The better-than-expected consumer spending data, however, did not have any positive impact on the U.S. equity markets. The Dow Jones was down 0.78%, while the S&P 500 was down 0.90%, at last check.

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