Consumer spending increases, savings rate drops slightly

While spending picked up, the savings rate dropped a bit — down to 5.9 percent in July from 6.2 percent in June, the highest level in nearly a year — as consumers paid of credit card debt and put money away, and the unemployment rate remained rooted above 9 percent.

The savings rate is still nearly three times higher than it was before the recession began in December 2007.

In the past, economists had expressed concern about low savings rates but now are worried that consumers are saving too much and holding back spending, which could push the nation into a second recession. 

Consumer spending accounts for nearly 70 percent of the economy, and concerns about the job market has created a cautious attitude about spending. 

Prices also remained flat in July, with an increase of 0.1 percent of the core consumer price index, which excludes food and energy prices that are more volatile, a figure watched closely by the Federal Reserve. 

Inflation increased 1.5 percent from July 2009, up from 1.4 percent year-over-year from the 12 months that ended in June, according to the report. 

At a meeting of world central bankers last week, Fed Chairman Ben Bernanke said the Fed “will do all that it can” to ensure a continuation of the economic recovery.

He said he expected consumer spending to increase slowly in the short term but pick up pace as unemployment levels improve. 

With a slew of bad economic news recently — second-quarter growth slowed to 1.6 percent from a revised initial estimate of 2.4 percent — analysts have revised their growth estimates for the economy downward for the remainder of the year and into 2011.