Instant View: Consumer spending rebounds strongly in July

NEW YORK (Reuters) - Consumer spending rebounded strongly in July to post the largest increase in five months on strong demand for motor vehicles, a government report showed on Monday, supporting views the economy was not falling back into recession.

COMMENTS:

PETER BUCHANAN, ECONOMIST, CIBC WORLD MARKETS, TORONTO

"The major surprise was in personal spending. While markets have been looking for some improvement in that area after a dismal Q2 performance, the 0.8 percent rise was three ticks above the consensus, with June's unwelcome decline being scaled back a tick to -0.1 percent.

"In real terms, spending was up 0.5 percent from June's level. While the consumer's somewhat better showing starting off the quarter is potentially somewhat better news, it remains to be seen whether July's improvement will carry over into the months ahead. Confidence fell precipitously in the wake of the debt deal and credit downgrade and expectations for this Friday's payrolls suggest job creation remains weak. Notwithstanding that, today's numbers are a plus for stocks and the U.S. dollar, and slight negative for fixed income."

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL

GROUP, STAMFORD, CONNECTICUT

"The headlines were a tad better than expected on the spending side, with that a function of a decrease in savings. The income figures were less impressive though with real disposable income slipping 0.1 percent and real incomes flat after transfer payments raising for us the question of where further consumption gains come from if not better incomes. The (Treasuries) market is little changed to a tad lower as you move out the curve."

BRIAN LAZORISHAK, PORTFOLIO MANAGER AT CHASE INVESTMENT COUNSEL

IN CHARLOTTESVILLE, VIRGINIA

"My early take is that this is neutral to slightly positive. Consumer spending has been focused on the past couple of months, so any kind of strength there is a good thing for the economy and the market.

"Doesn't seem to be much of an impact. I imagine getting through Irene without any major negative was enough to have the early lift. This data might help a little."

RUDY NARVAS, SENIOR ECONOMIST, SOCIETE GENERALE, NEW YORK

"It was better than expected after a couple of soft months. The three-month annual rate has come down a bit but it is a pretty good sign for July, and if you look at the real dollars, real dollars are firm too. With oil prices coming down it has really given a boost to the personal spending."

JEFFREY GREENBERG, ECONOMIST, NOMURA SECURITIES, NEW YORK

"The biggest surprise was the jump in personal spending. We were looking for half a percent and we got 0.8 percent. It's the biggest since 2009. It looks like this spending boost in July is durable goods and it's most likely vehicle sales.

"This could imply some upward revisions to Q3 GDP. If anybody was concerned about this recession risk people were taking about, this personal spending number seems to be another point against that recession argument. It seems at least through July, the economy was not too poor.

"I'd say given that core PCE is running at a pace that's approaching the Fed's 2 percent mandate it means any action the Fed's going to have to take has to address both sides of the mandate. It makes it a lot harder for the Fed to act when there's no deflation risk as there was at this time in 2010."

VIMOMBI NHSOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON

REUTERS

"Personal income's 0.3% increase in July was aligned with recent trend however, spending's above-trend growth of 0.8% was markedly above forecasts and the largest increase since in nearly two years (Aug '09, 1.2%). Revisions to June figures were minimal, with income up from 0.1% to 0.2%, and spending still recorded as falling 0.1%. Disposable income matched the headline's rise of 0.3%. The $42.4 bln change in income was boosted by a $24.2 bln rise in wages, about three times better than June's performance (which had originally been reported as a decline of $2.6bln). Other sources of income were modestly positive such as supplements ($3.7 bln), rental ($5bln), and receipts on assets ($7.5bln). Each an improvement from June."

"The savings rate fell to 5% from 5.5%."

MARKET REACTION:

STOCKS: U.S. stock index futures held onto earlier gains.

BONDS: U.S. Treasuries prices add to losses.

FOREX: The dollar held steady versus the euro and maintained slight gains versus the yen.