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US consumer spending rises less than expected; Core PCE eases in July

US personal consumption expenditure (PCE) rose by less than expected in July, increasing by 0.3% in July from the previous month. This was below estimates of 0.4% but there was upward revision to previous months’ numbers. The figure, while slightly below expectations, shows that consumer spending in the US is continuing to recover after a patchy 2014.

There was a large jump in purchases for durable goods, which climbed by 1.3% in July versus a fall of 0.9% in the previous month. Motor vehicle sales accounted for half of that increase. Non-durable goods sales were up by just 0.1%.

Personal income grew by 0.4% for the fourth straight month and was in-line with estimates. Its main component, wages and salaries, accelerated to 0.5%, the highest rate since November 2014. Real disposable income rose by 0.4% in July, following a 0.2% increase in June.

The PCE price index was unchanged at 0.3% year-on-year in July as expected. But the core rate, which excludes food and energy and is looked at closely by the Fed, eased to 1.2% year-on-year in July, against estimates it would stay unchanged at 1.3%.

The mixed data does little to suggest that US growth is showing signs of accelerating to unsustainable levels or that inflation is in danger of shooting up, but it does underline the strength in personal spending and personal income in a consumer-based economy. The Fed may want to see stronger signs of inflationary pressures building up before raising interest rates but with growing evidence of a strengthening US economy, it may decide not to wait.

The dollar was slightly firmer after the data rising against its major peers. It rose to 120.87 against the yen in late European trading. The euro fell to 1.1241 dollars after briefly testing the 1.13 handle, while the pound extended earlier losses to drop to 1.5351.

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