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Consumer spending up slightly

Saturday, September 29, 2012

Associated Press


Americans boosted their spending in August even though their income barely grew. Much of the spending increase went to pay higher gas prices, which may have forced consumers to cut back elsewhere.

The Commerce Department said Friday that consumer spending rose 0.5 percent in August from July. It was the biggest jump since February.

Gas prices rose nearly 50 cents per gallon in July and August but have since leveled off. Excluding the impact of higher gas prices and other price gains, spending ticked up only 0.1 percent last month.

Income grew only 0.1 percent, too. But after accounting for inflation and deducting taxes, income actually fell 0.3 percent — the poorest performance since November.

The increase in prices and slower growth in pay forced people to save less.

“The U.S. personal- income and spending data for August are worse than the headline figures suggest and indicate that subdued jobs growth is hitting incomes,” said Paul Dales, a senior U.S. economist at Capital Economics, a research firm. The increase “was largely due to extra spending caused by the surge in gasoline prices.”

High unemployment and weak wage growth have kept Americans from spending more freely, which has held back growth. Consumer spending drives nearly 70 percent of economic activity.

The economy grew at an annual rate of 1.3 percent in the April-June quarter, the government reported Thursday. Most economists say growth rate likely will hover around 2 percent in the July-September quarter, a rate that is far too weak to lower the unemployment rate.

“American household spending and income remain weak, indicating continued subpar growth,” said Sal Gautieri, senior economist at BMO Capital Markets.

The combination of weak income growth and a big jump in spending meant that households saved less. The saving rate dropped to 3.7 percent of after-tax income in August, down from 4.1 percent in July.

A price gauge tied to consumer spending jumped 0.4 percent, reflecting the rise in energy prices. It was the biggest one-month jump since March 2011. Excluding food and energy, prices barely changed. Over the past year, prices excluding food and energy rose only 1.6 percent, well below the Federal Reserve’s 2 percent inflation target.

Earlier this month, the government released a mixed report on retail spending that showed that consumers are feeling pinched by higher gas prices.

Consumers spent 0.9 percent more at retail businesses in August from July. But excluding the impact of gas prices and a sizeable increase in auto sales, retail sales rose just 0.1 percent.