Consumer spending in U.S. climbs 0.3% as incomes pick up

BOLSTERED BY A RISE in household incomes and an improved job market, consumer spending in the United States rose for the fourth consecutive month in August. / BLOOMBERG FILE PHOTO/DAVID PAUL MORRIS
BOLSTERED BY A RISE in household incomes and an improved job market, consumer spending in the United States rose for the fourth consecutive month in August. / BLOOMBERG FILE PHOTO/DAVID PAUL MORRIS

WASHINGTON – Consumer spending in the U.S. rose in August for a fourth consecutive month as a pickup in incomes bolstered the biggest part of the economy.

Household purchases, which account for about 70 percent of the economy, climbed 0.3 percent after a revised 0.2 percent advance in July that was more than previously estimated, the Commerce Department reported today in Washington. The advance in August matched the median forecast of economists in a Bloomberg survey. Incomes rose 0.4 percent, the most in six months.

Rising home values, stock market gains, and an improved job market are cushioning the effects of this year’s payroll tax increase and giving households the means to sustain purchases. At the same time, spending growth has shown little momentum since the end of the second quarter.

“We saw decent growth in personal income and stronger wage gains,” said Gus Faucher, senior economist at PNC Financial Services Group Inc. in Pittsburgh, who accurately forecast the gain in income. Still, the figures signal “it’s going to be just, at best, an OK holiday season” for retailers, he said.

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Stock-index futures held losses amid concern the budget impasse in Washington will hurt economic growth. The contract on the Standard & Poor’s 500 Index expiring in December fell 0.4 percent to 1,685.5 at 8:56 a.m. in New York.

Projections for spending ranged from increases of 0.1 percent to 0.5 percent after a previously reported July gain of 0.1 percent, according to the Bloomberg survey of 82 economists. The August increase in incomes, which matched the median estimate, followed a revised 0.2 percent rise the prior month.

Second quarter

The figures follow a Commerce Department report yesterday that showed the economy grew at a 2.5 percent annualized rate in the second quarter after expanding 1.1 percent in the first three months of the year. Consumer spending increased at a 1.8 percent pace after 2.3 percent gain in the first quarter.

Adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases rose 0.2 percent in August after a 0.1 percent increase the previous month, today’s report showed.

The saving rate climbed to 4.6 percent from 4.5 percent, while wages and salaries increased 0.4 percent after falling 0.3 percent.

Disposable income

Disposable income, the money left over after taxes, rose 0.3 percent after adjusting for inflation, the most in five months. It increased 0.2 percent in July.

Spending on durable goods including automobiles increased 0.8 percent after a 0.4 percent gain the prior month. Purchases of non-durable goods including gasoline fell 0.2 percent after a 0.6 percent advance.

The core price measure, which excludes food and fuel, rose 0.2 percent from July.

Faster job gains would help drive the wage increases needed to boost household purchases. Employers added 169,000 jobs in August, compared with an average 195,000 a month in the first half of the year.

Federal Reserve policy makers said at the conclusion of their Sept. 17-18 meeting that they want to see more evidence of an improvement in employment and the economy as they unexpectedly decided to continue their record monthly stimulus.

Fed’s Bernanke

“Conditions in the job market today are still far from what all of us would like to see,” Chairman Ben S. Bernanke said after a two-day meeting of the Federal Open Market Committee. “The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”

Cheaper borrowing costs have helped keep the auto industry at the forefront of the rebound. Ford Motor Co., General Motors Co. and Toyota Motor Corp. reported U.S. sales gains in August that exceeded analysts’ estimates. Sales of cars and light trucks rose at a 16 million annualized pace during the month, the strongest since November 2007, according to data from Ward’s Automotive Group.

At the same time, retailers aren’t faring as well. Wal-Mart Stores Inc. is cutting orders to suppliers this quarter and next to tame rising inventory. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected and the company has forfeited sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.

Wal-Mart

“We feel good about our inventory position,” Wal-Mart spokesman David Tovar said in a telephone interview. The order pullback is happening “category by category,” Tovar said. “In some cases, we’re going to be taking less, in some we’re going to be taking more.”

U.S. chains are bracing for a tough holiday season, with sales are projected to rise 2.4 percent, the smallest gain since 2009, according to ShopperTrak, a Chicago-based firm.

Wal-Mart cut its annual profit forecast after same-store sales fell 0.3 percent in the second quarter.

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