WASHINGTON (Dispatches) - U.S. personal spending growth moderated in July, reflecting a slowdown in outlays for merchandise, while a closely watched measure of inflation remained elevated.
Purchases of goods and services rose 0.3% following a revised 1.1% increase in June, Commerce Department figures showed Friday. The personal consumption expenditures price gauge, which the Federal Reserve uses for its inflation target, climbed 0.4% from a month earlier and 4.2% from July 2020.
The report also showed that income growth accelerated on the heels of an advance disbursement of the child tax credit and a pickup in compensation.
After adjusting for the change in prices, household demand was more muted, suggesting a softer start to third quarter household outlays, a key component of gross domestic product. Real personal spending fell 0.1% in July.
Inflation-adjusted spending on services climbed 0.6% from a month earlier, while merchandise outlays dropped 1.6%, the report showed. While the gain in services reflects a shift in spending for things like travel and entertainment, the rapidly spreading delta variant risks setting back progress in industries hardest hit by the pandemic.
Economists currently project consumer spending to rise an annualized 5% in the current quarter after a robust 11.9% pace in the three months through June, according to Bloomberg survey data.
The median estimates in a Bloomberg survey of economists called for 0.4% increases in both personal outlays and the price index from a month earlier.
U.S. equity futures advanced, Treasury yields fell and the dollar was little changed after the government figures.