Spending Soars, But Boom Could Be Brief Consumers May Be Buying, But Incomes Haven’t Risen Enough To Sustain Trend
Consumer spending shot up in August at the fastest pace in three months as Americans flocked to auto showrooms to take advantage of steep discounts. But incomes were unchanged, prompting speculation the boom may be brief.
The Commerce Department said Monday that spending, which accounts for about two-thirds of the nation’s economic activity, rose a robust 1 percent in August.
It was the biggest increase since a 1.1 percent jump in May and followed a 0.1 percent dip in July. Analysts said the August surge was due largely to sales of cars at bargain rates.
There were no gains in incomes in August, the government said, as private wages and salaries actually fell.
Analysts said consumers, already burdened by heavy debt, used savings to help finance their purchases. The savings rate - savings as a percentage of income after taxes - fell to 3.6 percent in August from 4.5 percent in July.
“The pace of consumption spending during the summer is unsustainable unless there are substantial gains in incomes,” said economist Gordon Richards of the National Association of Manufacturers.
Some analysts said income growth and a slower advance in spending could mean healthy economic expansion for the remainder of the year.
“I’m in the camp that says that the end of this year will be pretty solid,” said banking economist David Orr of First Union Corp. in Charlotte, N.C. “But it won’t carry through to next year.”
There were other signs of sluggishness Monday that helped hold down the stock market. The Dow Jones industrial average fell 27.82 points. The yield on the 30-year Treasury bond fell to 6.47 percent, moving in the opposite direction of its price.
The Commerce Department also reported that construction spending fell 0.2 percent in August - the first decline in three months - after hitting a record high in July. But single-family home building rose for the second straight month as mortgage rates remained favorable.
The National Association of Purchasing Management reported that manufacturing was still sluggish in September. The group’s index rose to 48.3 percent from 46.9 percent, but was still below a 50 percent reading associated with factory expansion.
“The spending growth rate will come down,” said economist Elliott Platt of Donaldson, Lufkin and Jenrette Securities Corp. “The economy is very much on a soft-landing trajectory.”
The government reported Friday that the economy grew at a weak 1.3 percent annual rate in the second quarter, slightly more than previously reported but still the slowest pace in more than two years. Analysts expect growth to pick up but still remain moderate.
Income was at $6.06 trillion at a seasonally adjusted annual rate in August and spending rose to $4.93 trillion.
Private wages and salaries, the most closely watched component of income, declined at a $7.1 billion annual rate in August compared with a $26.6 billion gain the previous month. Service industry payrolls fell $7.2 billion, compared with an increase of $16.2 billion in July.
Government wages and salaries rose at a $1.7 billion rate in August, compared with $6 billion a month earlier.
On the spending side, outlays for big-ticket durable goods such as cars and appliances rose 5.4 percent in August to a seasonally adjusted annual rate of $647 billion.