Americans spent more money for the fourth straight month in August as incomes jumped to six-month highs, indicating some momentum in the economy might be growing despite government cutbacks and a sluggish labor market.
In Friday’s report on personal income and outlays, the Commerce Department showed that personal income increased 0.4 percent in August from July to $57.2 billion, marking the sharpest rise since February. The advance in paychecks matched economist predictions.
Private wages and salaries rose $28.5 billion, reversing course from a decrease of $10.9 billion in July. Government wages and salaries increased $2.0 billion in August after contracting $7.6 billion in July.
Disposable income, or the money left after taxes, rose 0.3 percent on an inflation-adjusted basis, the biggest increase since March.
Personal consumption expenditures, or “PCE,” which represents about 70 percent of the nation’s economy, rose 0.3 percent in August to $34.5 billion, following a revised 0.2-percent rise in July. Economists also pegged the 0.3-percent climb in PCE for the month. Consumer spending has been climbing since April (-0.2%), including a 0.6-percent jump in June.
So-called “core” PCE, which excludes volatile food and energy prices, rose 0.1 percent, in line with economist expectations. The one-year core inflation rate was 1.2 percent in August, continuing to hold steady around those levels for five months, but still well below the 2.0-percent mark targeted by the Federal Reserve. Muted inflation keeps the door open for continued monetary stimulus by the main bank, which is currently buying $85 billion every month in assets to try and spark the economy. The Fed shocked most analysts a week and a half ago by saying that it wasn’t going to scale back its purchases in September.
People even saved a bit more with the higher incomes with personal saving rising to $580.7 billion in August from $562.8 billion in July. The personal saving rate edged up from 4.5 percent to 4.6 percent. The savings rate hasn’t been over 5 percent since late in 2012.
Helping Americans feel more comfortable amid a hike in payroll taxes this year is a stock market hitting record highs and home values steadily climbing. Economists have been concerned that soft consumer spending will slow the economy in the second half of the year. In the first quarter, the country grew at a 1.1-percent annualized rate. In the third and final report on second-quarter GDP, the Commerce Department left growth at a 2.5-percent annualized rate. Currently, economists are expecting third-quarter GDP to show 1.9-percent growth.
The markets are not reacting favorably to the on par report, surrendering gains from yesterday and putting the Dow Jones Industrial Average in line to fall for the sixth time in seven days should things not change direction. The Dow is off by 75 points while the broader S&P 500 is lower by 9 points and the tech-heavy Nasdaq has given up 18 points in early Friday trading.
