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Consumer spending jumps but personal income growth slows

Consumer spending jumps but personal income growth slows

U.S. consumer spending rose at a healthy rate in August, while income growth slowed after a big jump in July. Consumer spending advanced 0.4% compared to July, when spending also increased by 0.4%, the Commerce Department said Monday. In both months, the figures reflected strong gains in purchases of durable goods such as autos.

Consumer spending accounts for two-thirds of economic activity, and the latest result supports expectations for it to remain strong in the second half of this year. That should help serve as a buffer against a global slowdown that has hurt American manufacturers. “Overall consumer spending remains robust and highlights a solid employment backdrop,” said Bricklin Dwyer, an economist at BNP Paribas. “We expect firm spending ahead as employment remains solid and wages begin to accelerate.”

Sal Guatieri, senior economist at BMO Capital Markets, said that the spending gains were broad, with consumers getting a boost in spending power from falling energy prices. He predicted that spending in the current July-September quarter would remain robust at an annual rate above 3%. Personal income was up 0.3% in August, helped by another solid increase in wages and salaries. The result follows a 0.5% income gain in July, which had been the best showing in eight months.

The government on Friday issued its final estimate for overall economic growth for the spring, saying the gross domestic product expanded at an annual rate of 3.9% in the April-June quarter. That’s a strong rebound from an anemic rate of 0.6% in the January-March period. Much of that bounce back reflects a surge in consumer spending, which grew at a 3.6% rate in the spring, double the rate in the winter.

Economists believe that overall growth has slowed to something around 2.2% to 2.5% in the current quarter. Yet they expect a modest acceleration in the final three months of this year, believing that strong gains in employment will provide people with more money to spend. The slowdown in income growth in August meant that that the saving rate slipped a bit to 4.6% of after-tax incomes, down from 4.7%  in July.


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