By Anne D'Innocenzio, Christopher S. Rugaber and Martin Crutsinger, AP Business Writers
WASHINGTON (AP) — The economy might not be on the brink of another recession after all.
Consumers, who drive most economic growth, spent more on cars, furniture, electronics and other goods in July — and more in May and June than previously thought. That burst of activity is encouraging because it shows many Americans were willing to spend despite high unemployment, scant pay raises, steep gas prices and diminished wealth.
If it keeps up, the economy might rebound after growing at an annual rate of just 0.8% in the first half of 2011. But that's a big if.
Whether Americans remain willing to spend freely despite the stock markets' wild swings will determine whether the second half of the year is any better than the first. Their 401(k) retirement accounts have shrunk.
A sustained stock-market decline tends to slow consumer spending because it reduces wealth, especially for upper-income Americans. The richest 10% of Americans own 80% of stocks. And the richest 20% drive about 40% of consumer spending, analysts say.
That loss of wealth may help explain a report Friday that consumer sentiment hit a 31-year low in August. The Thomson Reuters/University of Michigan's survey, completed early this week, showed that market turmoil and the political strife over raising the federal debt ceiling rattled consumers.
"The fact that retail sales held up over the last few months ... is a positive economic development," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "However, the true test will be to see if consumer activity held up in the face of recent financial market gyrations and slumping economic confidence. So the August data will be of much greater significance."
The Dow finished Friday with a gain of 125.71 points, or 1.1%, to close at 11,269.02. That means the turbulent week in the end dragged the market down just 1.5% after it had plummeted as much as 6.3%.
The Dow is still down about 11% since July 21.
Worries about the markets and the economy already seem to have caused some shoppers to pull back. The International Council of Shopping Centers-Goldman Sachs index, which tracks revenue at stores open at least a year, has shown two straight weekly declines.