WASHINGTON (AP) – Consumers increased their spending in July by the largest amount in six months and the back-to-school shopping season got off to a strong start in August, boosting hopes that the economy will not stumble into a recession this year.

The Commerce Department reported that July consumer spending rose by a healthy 0.8 percent, double the 0.4 percent gain in June, reflecting a rebound in auto sales.

The new reports provided evidence that consumers are continuing to spend despite rising interest rates, a cooling housing market and gasoline prices that hit records this summer above $3 per gallon.

That is good news for the economy, given that consumer spending accounts for two-thirds of total economic growth. A slowdown in consumer spending in the spring contributed to a sharp drop in overall economic activity and raised worries that further consumer cutbacks could short-circuit the economic expansion.

Analysts said Thursday’s reports should ease concerns of that occurring.

“Consumers are hanging tough and will continue to support the expansion,” said Mark Zandi, chief economist at Moody’s Economy.com.

Some analysts say overall economic growth in the second half of this year may come in at a stronger pace than expected, based on the rebound in consumer spending. But they said it was critical that consumer confidence stabilize in coming months.

The Conference Board reported this week that confidence in August fell to its lowest point since last November, reflecting such adverse factors as the surge in gas prices, the tumbling housing market and the discovery in London of a new terror threat against airline travel.

“Although consumer sentiment has deteriorated, consumers are still spending,” Nigel Gault, an economist at Global Insight, said regarding Thursday’s reports.

Many analysts said consumer spending should rebound further as long as the employment situation does not falter.

There was good news in that area as well Thursday, with the Labor Department reporting that the number of Americans filing new claims for unemployment benefits dropped by 2,000 to 316,000 last week.

The government will release the August unemployment report Friday and many analysts are predicting the jobless rate will decline from a five-month high of 4.8 percent in July to 4.7 percent with a moderate 125,000 new jobs created.

On Wall Street, the Dow Jones industrial average edged down 1.76 points to close at 11,381.15 in a day of listless trading as investors awaited Friday’s release of the jobs report.

Federal Reserve Chairman Ben Bernanke struck a positive note about the economy in a speech Thursday in South Carolina, predicting that the strong productivity growth the country has enjoyed since 1995 “is likely to continue for some time.”

The 0.8 percent rise in spending last month, the best increase since a 0.9 percent rise in January, reflected in part higher gasoline costs. However, even with inflation removed, spending rose by 0.5 percent in July, the best performance since a similar increase last December.

An inflation gauge tied to consumer spending that is closely watched by the Fed edged up by just 0.1 percent in July, the slowest monthly gain this year, although over the past 12 months prices are up 2.4 percent, well above the Fed’s 1 percent to 2 percent comfort zone.

The Fed wants to slow the economy enough to keep inflation under control but not overdo the credit tightening and push the economy into recession.

In minutes of its August meeting released this week, the Fed described its decision to pause in its rate hikes as a “close call.” Many economists believe the Fed will keep interest rates unchanged at the next meeting on Sept. 20.

In other economic news, the Commerce Department said orders to U.S. factories for manufactured goods fell by 0.6 percent in July, the biggest decline since April. The weakness was led by a big drop in demand for commercial airplanes that pushed durable goods orders down by 2.5 percent.

Outside of transportation, orders posted a solid gain of 1.1 percent. Analysts said this supported their view that manufacturing, the hardest hit sector in the last recession, will continue growing in the months ahead, supported by strong business investment.

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On the Net:

Personal incomes and spending: http://www.bea.gov/bea/rels.htm

Factory orders: http://www,census.gov/m3

Jobless claims: http://www.ows.doleta.gov

AP-ES-08-31-06 1742EDT