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"Giddy" U.S. consumers boost spending in July, outpacing income

U.S. consumer spending grew 0.6% in July, a strong 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.

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.

"A giddy American consumer looks to drive the U.S. expansion forward again" in the third quarter, wrote Sal Guatieri, senior economist at BMO Capital Markets, in a Friday research report. "Recreational goods jumped 2.4% and have been on fire all year, a testament to the households' thirst for discretionary items amid lofty confidence in job prospects."

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.

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