U.S. con­sumer spend­ing at weak­est pace in 5 months

Daily Local News (West Chester, PA) - - BUSINESS - By Martin Crutsinger AP Economics Writer

WASH­ING­TON>> U.S. con­sumers scaled back their spend­ing in Au­gust to its weak­est pace in five months, re­flect­ing a drop in spend­ing on au­tos. In­come growth also de­cel­er­ated as wages and salary gains slowed fol­low­ing four strong months.

Con­sumer spend­ing was un­changed last month af­ter solid gains of 0.4 per­cent in July and 0.3 per­cent in June, the Com­merce Depart­ment re­ported Fri­day. It was the poor­est show­ing since a sim­i­lar flat read­ing in March.

Per­sonal in­comes rose 0.2 per­cent last month, just half the gain in July. It was the weak­est show­ing since a 0.1 per­cent drop in Fe­bru­ary. Wages and salaries, the big­gest in­come cat­e­gory, were up just 0.1 per­cent af­ter two months of 0.5 per­cent in­creases.

The Au­gust spend­ing slow­down is ex­pected to be tem­po­rary. Econ­o­mists are count­ing on con­sumers to help lift the econ­omy to growth, as mea­sured by the gross do­mes­tic prod­uct, of around 3 per­cent in the cur­rent July-Septem­ber per­for­mance. That would be a sig­nif­i­cant im­prove­ment from ane­mic growth that has av­er­aged just 1 per­cent over the past

three quar­ters.

“Con­sumers took a breather in Au­gust,” said Chris G. Christo­pher Jr., di­rec­tor of con­sumer economics at Global In­sight. “Per­sonal spend­ing was flat af­ter four months of rather siz­able gains.”

Christo­pher said one fac­tor in the slow­down may have been a de­ci­sion by par­ents to de­lay part of back-toschool shop­ping un­til later in the year when they can get bet­ter deals.

Sal Gu­atieri, se­nior econ­o­mist at BMO Cap­i­tal Mar­kets, said the Au­gust re­sult points to a some­what slower pace for con­sumer spend­ing in the cur­rent quar­ter. He said spend­ing growth would likely mod­er­ate to an an­nual rate of around 2.8 per­cent in the third quar­ter, down from 4.3 per­cent growth in the sec­ond quar­ter, which had been the fastest jump since late 2014.

For Au­gust, pur­chases of durable goods fell 1.3 per­cent, with most of that de­cline re­flect­ing the fall-off in auto sales. Pur­chases of non­durable goods were down 0.2 per­cent. Sales of ser­vices, which in­clude util­i­ties, rose 0.3 per­cent.

The small rise in in­comes and the un­changed per­for­mance of spend­ing meant that the sav­ing rate rose to 5.7 per­cent, up from 5.6 per­cent in July.

A key mea­sure of in­fla­tion pre­ferred by the Fed­eral Re­serve was up a tiny 0.1 per­cent in Au­gust and has risen just 1 per­cent over the past year. Ex­clud­ing volatile food and en­ergy, this in­fla­tion mea­sure is still up just 1.7 per­cent, be­low the Fed’s 2 per­cent tar­get for in­fla­tion.

The cen­tral bank last week left its key in­ter­est rate un­changed, though sent a strong sig­nal that it was likely to boost the rate be­fore the end of this year. The Fed has not raised rates since one quar­ter-point hike last De­cem­ber. Muted in­fla­tion have given the Fed lee­way to keep in­ter­est rates at ul­tra-low lev­els.

THE AS­SO­CI­ATED PRESS

A cus­tomer buys lunch at Smo­lak Farms in North An­dover, Mass., on Wed­nes­day.

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