WASHINGTON (AP) — Americans spent at the fastest pace in five months in July after earning a little more. The increase in income and consumer spending could help boost an economy mired in subpar growth.

Consumer spending rose 0.4 percent in July from June, the Commerce Department said Thursday. That followed no change in June and a slight decline in May.

Income grew 0.3 percent, matching the gains from May and June. Americans also earned 0.3 percent more after paying taxes.

The savings rate after taxes dipped to 4.2 percent in July. That's down slightly from 4.3 percent in June, the highest in a year.

Consumer spending is closely watched because it accounts for 70 percent of economic activity.

Paul Dales, senior U.S. economist at Capital Economics, said that the rise in spending showed "there is still life in American consumers." But he cautioned that higher gasoline prices and a decline in consumer confidence in August could dampen spending in coming months.

Hiring picked up in July and could see further modest gains in August. The number of Americans seeking unemployment benefits was unchanged last week at a seasonally adjusted 374,000, the Labor Department said in a separate report Thursday.

Applications are a measure of the pace of layoffs. They have risen slightly over the past three weeks but remain lower than they were in the spring, when hiring nearly stalled. When applications fall consistently below 375,000, it generally suggests that hiring is strong enough to lower the unemployment rate.

The government releases the August jobs report on Sept. 7. Analysts expect it to say the economy added 118,000 jobs in August and that the unemployment rate held at 8.3 percent, according to FactSet.

Economists say stronger growth is needed to create more jobs and lower unemployment.

Reports released Thursday from a range of retailers show Americans kept spending in August despite the increase in gas prices.

Costco Wholesale Corp.'s revenue from stores open at least a year climbed 6 percent. And Target Corp. reported a 4.2 percent increase in revenue at stores opened at least a year. The strong sales reports come two days after a private research firm said consumer confidence in August fell to its lowest level since November 2011.

The economy grew at a tepid annual rate of 1.7 percent in the April-June quarter, the government said Wednesday. Many economists expect growth will hover around 2 percent in the second half of the year. Growth at that level is far below what is needed to rapidly lower the unemployment rate.

Slow growth could prompt the Federal Reserve to take further steps to boost the economy when policymakers meet again on Sept. 12-13. In late July, Fed policymakers spoke with increased urgency about the need to provide more help for a weak U.S. economy.

Chairman Ben Bernanke could offer some clues Friday to what the Fed might announce when he speaks at a Fed conference in Jackson Hole, Wyo. Some suspect the Fed will wait to see how the economy performed in August, especially after July's data was better than expected.

Inflation has been tame, which could provide the Fed more leeway to act.

Consumers paid no more their purchases in July than June, the report showed. Excluding food and energy, prices over the past year are up just 1.6 percent, well below the Federal Reserve's 2 percent target for inflation.

Employers created 163,000 jobs in July, the most since February. Consumers stepped up retail spending, factories produced more goods and the housing recovery continued with increases in both new and previously occupied homes.

In its latest survey of business conditions around the country, the Federal Reserve reported Wednesday that the U.S. economy grew moderately in July and early August with stronger retail sales helping to offset weakness in manufacturing.