Consumer Spending Rises in August, Outstripping Income Growth

By September 28, 2012Economy

Americans increased their spending for the second month in a row, according to data from the Bureau of Economic Analysis. Personal spending rose 0.5 percent in August, building on the 0.4 percent growth observed in July. On the other hand, spending rose by 0.1 percent when adjusted for inflation. Higher energy costs accounting for the bulk of the increase in consumer prices in August, with energy costs up 5.8 percent. It is important to note, though, that energy cost in August 2012 were the same as they were in August 2011, with a year-over-year rate of zero percent.

Higher energy costs in August were also a significant contributor in the higher consumer spending figure. Nondurable goods consumption – which includes gasoline – rose $42.2 billion at the annual rate, or an increase of 1.7 percent. Durable goods consumption, in contrast, was up just $4 billion, or 0.3 percent. For durables, this was the fastest growth rate in spending since February.

Meanwhile, personal income increased 0.1 percent in August, the same growth rate as in July. Much of the increase came from rental and dividend income. For manufacturers, which continue to experience significant weaknesses, wages and salary compensation was lower, down from $731.8 billion to $726.6 billion. The longer-term trend for manufacturing workers remains positive year-to-date, as wages and salaries in the sector began the year at $716.4 billion.

With spending outstripping income growth, the savings rate fell from 4.1 percent in July to 3.7 percent in August.

In conclusion, the latest personal income and spending data offer mixed news of the economy. Higher durable and nondurable spending is obviously a good thing, even if the increases might have been led by higher gasoline costs. At the same time, it is also clear that manufacturing activity remains weak, as noted in other indicators, as well. Wages and salaries in the manufacturing sector were lower, for instance. Lastly, a declining savings rate might limit future growth in spending, and to the extent that this was related to higher gasoline prices, it could zap consumer sentiment.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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