Consumer Spending Up In July

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Many people have been predicting a complete collapse of the economy, but signs don’t point to that happening. July consumer spending was up, but it’s not enough to convince pundits that an economic rebound is imminent. The rise in spending related to a higher than expected rise in income. But investors are still waiting to see what the Fed does about interest rates.

Financial markets are hoping that the Federal Reserve will step in to deal with the turmoil by delivering a series of reductions in the federal funds rate, the benchmark rate for millions of consumer and business loans. Federal Reserve Chairman Ben Bernanke was expected to discuss how the Fed can deal with the slump in housing at a conference on monetary policy in Wyoming on Friday.

The Fed got good news in advance of Bernanke’s speech in the spending report, which showed that a key inflation gauge tied to consumer spending which excludes food and energy rose by just 0.1 percent in July. This measure of core inflation had been up 0.2 percent in June. For the year ending in July, core inflation by this measure is up just 1.9 percent — within the Fed’s preferred 1 percent to 2 percent comfort zone and well below the 2.5 percent year-over-year increase seen in February.

It was also announced today that the Bush administration is setting up a number of initiatives aimed at helping the ailing mortgage industry as well as beleaguered homeowners. Together these steps may be enough to kick-start the economy.

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