Economists say they will also be watching the inflation data contained in the report, which is expected to rise at a continued robust pace.

The Federal Reserve's preferred measure of inflation, the personal consumption expenditures (PCE) core deflator, which excludes volatile food and energy components, is expected to advance by 0.3% in July, matching the 0.3% (0.266%) gain in June.

The annual gain in core PCE is expected to tick up to 2.4% from 2.3%, four-tenths above the Fed's unofficial target inflation rate of 2.0%.

"The steady drift above the top of the Federal Reserve's presumed 1.5 - 2% target band will make it harder for the Fed to downplay inflation risks as we move through the second half of the year," said Patrick Newport and Nigel Gault from Global Insight. "Nevertheless, dismal growth prospects should keep the federal funds rate at 2.0% into the first half of 2009."

Total consumer spending, which comprises roughly 70% of U.S. gross domestic product and about 20% of world GDP, is expected to increase by 0.2% in July, slower than the 0.6% gain in June. The year-over-year gain in consumer spending is currently 5.4%. Personal income is expected to fall 0.2% following the previous month's 0.1% gain.

"July represents an inflection point after which the U.S. fiscal stimulus impact may start to wane," said TD economics strategist Millan Mulraine in explaining his somewhat elevated forecast for spending at 0.4%. Mulraine said he expects income to come in "modest" at 0.2% month-over-month.

"August could be considerably worse on both fronts, as the true nature of the U.S. economy once again reveals itself, driven by close to 500k jobs already lost in the U.S. since January, an unemployment rate heading towards 6%, and home prices falling by 16% over the past year."

Sal Guatieri, senior economist at BMO Capital Markets, said consumers have hit a wall and inflation-adjusted consumption could see the first negative quarter in 17 years. "Retail receipts dipped and auto sales plunged, suggesting real spending fell in the month. And with weekly same-store figures showing further weakness in August, we could see the first decline in real consumer spending since the 1991 recession in Q3."

Newport and Gault are expecting the stimulus rebates to add about $6.0 billion to transfer payments in July, down from June's contribution of $12.5 billion. They said private wage and salary disbursements should come in flat, but there's a risk on the downside. "Overall, for July, we are expecting a 0.5% drop in personal income."

On a year-over-year basis, total personal consumption and expenditure is expected to advance by 3.1%.

The average American household spends about 95% of all income received, and the Department of Commerce report is the most comprehensive measure of consumer spending in the United States. Swings in personal consumption and expenditure trends can create major shifts in the business cycle.

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