Spending Rose In July Despite Flat Incomes And A Soft Job Market; Low-Cost Loans Still The Key; But analysts worry about holiday spending if hiring doesn't begin to pick up.(A)

Byline: JED GRAHAM

Consumer spending rose 1% in July, the fastest pace in eight months, despite a 0.2% drop in wages and salaries and flat incomes overall.

A surge in auto buying spurred by renewed 0% financing fueled the gains, as spending on durable goods jumped 3.7%. Nondurable spending rose a solid 0.6%.

Friday's Commerce Department data showed consumers continue to take advantage of low interest rates, keeping the economy on the recovery path. That strength can't persist without wage gains, but the flat personal income growth in July comes after healthy increases in prior months.

Still, weakening corporate profits raise the risk of rising unemployment, paltry income gains and lackluster economic growth.

"To keep buying all those cars and homes, you have to have income growth," said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. "If the job market remains sluggish, economic growth will be lackluster and may even peter out."

Disposable income rose 0.2% in July, thanks to lower tax payments and financing costs. But factoring in a 0.2% increase in prices, real disposable income was unchanged from June.