U.S. consumer spending up modest 0.3 percent in August

WASHINGTON – U.S. consumer spending edged up a moderate 0.3 percent in August as sales of cars and other durable goods fell. A key gauge of inflation slowed slightly after its biggest annual gain in six years.

The rise in spending represented a slowdown from gains of 0.4 percent in both June and July, the Commerce Department reported Friday. Consumer spending is closely watched because it accounts for two-thirds of economic activity.

The government reported Thursday that the overall economy, as measured by the gross domestic product, grew at an annual rate of 4.2 percent in the April-June quarter, the best in nearly four years.

However, GDP is expected to slow in the second half of this year to around 3 percent. That pace would still be solid enough to boost growth for the full year to 3 percent, the best annual performance in 13 years.

Economists said that they expected low unemployment to keep consumer spending growing at a solid pace for the rest of this year and into next year.

“Improving household finances, fueled by solid wage gains and lower personal tax rates, will help bolster consumer spending for several quarters,” said James Bohnaker, associate director of the economic consulting firm IHSMarket.

An inflation gauge closely watched by the Federal Reserve edged up 0.1 percent in August, a tiny gain which left prices rising 2.2 percent over the past 12 months, down from a 2.3 percent 12-month rise in July which had been the fastest pace in six years.

The inflation slowdown will be welcomed at the Federal Reserve which raised its policy interest rate for an eighth time on Wednesday as it tries to make sure that unemployment which has fallen to near a 50-year low does not trigger unwanted inflation.

Core inflation, which excludes energy and food, was up 2 percent for the 12-months ending in August. It has been at that level for the last 12 months. The Fed’s goal is to keep inflation at a 2 percent annual gain.

The spending report showed that purchases of durable goods, a category that includes autos, fell by 0.1 percent in August which held back overall spending. Purchases of nondurable goods rose a sharp 0.5 percent, an increase that reflected in part rising gas prices, while purchases of services rose 0.4 percent.

Incomes, which provide the fuel for future spending, were up a modest 0.3 percent for a second straight month although wages and salaries, the key component of incomes, rose a strong 0.5 percent, the best showing since January.

The saving rate in August was unchanged at 6.6 percent of disposable income.