Fresh Data Suggest Economy Firing on All Cylinders

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Toby Talbot/AP
By Lucia Mutikani

WASHINGTON -- A gauge of U.S. consumer spending rose solidly in June, in the latest indication that the economy ended the second quarter on a stronger footing.

That momentum appeared to have carried into the third quarter, with another report Tuesday showing factory activity in New York state expanded sharply in July.

"This is not a fragile economy," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "The consumer continues to play their part in moving the economy forward."

Core sales, which strip out automobiles, gasoline, building materials and food services, increased 0.6 percent last month after rising an upwardly revised 0.2 percent in May, the Commerce Department said.

Core sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported as being flat in May. Economists had expected them to rise 0.5 percent in June.

The report added to signs of the economy's strengthening fundamentals, which could buoy optimism the recovery is on a self-sustaining path, after output contracted sharply in the first quarter.

Federal Reserve Chair Janet Yellen told lawmakers the economy continued to improve, but noted that the recovery wasn't yet complete because of still-high unemployment.

Yellen, however, cautioned the U.S. central bank could raise interest rates sooner and more rapidly than currently envisioned if the labor market continued to improve faster than anticipated by policymakers.

Labor market conditions are firming, with the unemployment rate falling to a near six year-low of 6.1 percent in June and job growth exceeding 200,000 for a fifth straight month.

Prices for U.S. Treasury debt fell on the economic data and Yellen's interest rate comments, while the dollar gained against a basket of currencies. U.S. stocks traded lower.

June's gains and May's upward revision to core retail sales suggested a pickup in consumer spending in the second quarter after growing at its slowest pace in more than four years in the first quarter because of weak healthcare consumption.

Forecasting firm Macroeconomic Advisers raised its second-quarter GDP growth forecast by three-tenths of a percentage point to a 3 percent annual pace. Goldman Sachs (GS) upped its estimate for the quarter by two-tenths to a 3.4 percent rate.

Upbeat Outlook

A surprise drop in receipts for automobiles, however, held overall retail sales to a 0.2 percent increase in June after advancing 0.5 percent the prior month.

"Consumers will likely gain more confidence to spend as the job market improves and summer travel season hits full swing," said Randy Hopper, credit cards vice president at Navy Federal Credit Union in Vienna, Virginia.

"We are optimistic that the second half of the year will deliver stronger sales growth."

From employment to manufacturing, the economy appears to be firing on nearly all cylinders, with even housing regaining its footing after slumping in late 2013 following a run-up in mortgage rates. Growth estimates for the second quarter top a 3 percent annual rate.

In another report, the New York Fed said its Empire State general business conditions index jumped to 25.60 this month, the highest since April 2010, from 19.28 in June.

New orders edged up, while factory employment and shipments surged. There were also signs of inflation pressures, with measures of both prices received and paid by manufacturers rising in July.

Overall retail sales in June were restrained by a 0.3 percent fall in receipts at auto dealerships. The decline is surprising given automakers reported a surge in motor vehicle sales in June.

Auto sales had increased 0.8 percent in May. Excluding autos, sales grew 0.4 percent after rising by the same margin in May. There were increases in sales at non-store retailers, which include online sales, as sales at clothing retailers.

Receipts at sporting goods shops rose as did those at electronics and appliances stores. But sales at building materials and garden equipment suppliers fell 1 percent.

-Additional reporting by Rodrigo Campos in New York.

6 Little Changes You Can Make to Save Big Bucks
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Fresh Data Suggest Economy Firing on All Cylinders
Most of us spend a ton of time researching our options when we first sign up for a plan or policy, then forget all about it and make monthly payments like a robot. But this can cost you.

If you've been on the same cell phone plan for a while, or you haven't looked at the terms of your insurance policies (home, life, auto) since you got them, it's time to do a review. Your circumstances may have changed, and new plans or deductions may have come out since you first signed up. Call up customer service (or your agent) and have them walk you through your options if you're having trouble comparing things on your own.
One of the biggest budget sucks is our own forgetfulness. We miss payments and incur late fees because we've misplaced our statement or didn't manage to get our mail out in time. We fail to save as much as we'd like because we just never remember to do it.

The easiest way to save yourself some money (and hassle and stress) is to set it and forget it. Sign up for auto-pay so your monthly bills are automatically deducted from your checking account. Have a certain amount automatically transferred each month from your checking to your savings account. Remove the human error factor, and your budget will be better for it.
We charge so much nowadays -- whether on credit cards or debit cards -- that it's easy to spend a lot of money without really registering it. When you have a set amount of bills in your wallet, however, it's extremely easy to see how much you've spent so far this month and how much is left.

Take those budget categories of yours -- groceries, entertainment, etc. -- and turn them into real, physical envelopes. At the beginning of each month, put that month's allotment of cash into each envelope. When you're running low, you'll know you need to be careful with your purchases. When you're out, you're done spending on that category till next month.
If you're prone to impulse purchases, imposing a waiting period on yourself is an easy way to break the cycle.

For large purchases, a 30-day waiting list is best. Write down the item that's calling to you, then wait 30 days before allowing yourself to buy it. You may realize in that time that you don't need it after all. Or you may forget why it called to you in the first place.

For smaller impulse buys, like that fancy new product you spotted in the grocery aisle, follow a 10-second rule. Before the item can go into your cart, spend 10 full seconds asking yourself if you really need it and how you will use it. Simply analyzing why you're getting something can disrupt the siren call of a product.
It's all too easy to blow $5, $10, even $20 on something, whether it's an extra meal out or a coffee on the run. In the grand scheme of things, it "doesn't seem like much" to us. But if you start thinking of your money in terms of the time it took you to earn that money, suddenly you find yourself evaluating your spending choices a little closer.

Figure out what you make per hour if you're salaried (if you're hourly, this will be easy). Let's say you make $15 per hour. For every $15 you spend, you'll have to spend another hour of your time at work to pay for that item. A coffee a day for a week can cost you an hour or two. And bigger items, like that flat screen TV you're eyeing? You get the drift. Framing purchases in light of time spent can help you make sure something is worth it.
In the end, a budget is simply a means of making sure your money is working for you. It allows you to see how much you're brining in and allocate it towards the things that are most important to you. If you can hold those bigger goals in mind, everyday budgeting becomes easier.

If you're wondering whether or not to buy something, ask yourself if that money would be better spent towards your big goal. Put a visual reminder in your wallet to keep you on task-like a photo of a sandy beach if you're trying to save up money for a trip. Viewing your budget in terms of what it will allow you accomplish-not the things it won't allow you to buy, can revolutionize your spending.
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