U.S. Consumer Spending Slows in August, Along With Income Growth

U.S. consumer spending in August slowed to the lowest rate in five months, with income, wage, and salary growth also slowing after four strong months. Adjusted for inflation, purchases fell 0.1 percent in August, following 0.3 percent growth in July. Bloomberg notes that while the slowdown is no cause for panic, given that consumer purchases are the engine driving the American economy, their ups and downs are worth following.

Consumption advanced a respectable 0.4 percent in July and 0.3 percent in June, according to the Commerce Department, and remained unchanged, for the first time since January, during the month of August. Early indications of the drop in real spending could be seen in slowing retail sales and flagging demand automobiles.

Personal incomes also grew just 0.2 percent in August, compared to 0.4 percent in July, marking the weakest income growth since February’s 0.1 percent drop. Wages and salaries increased just 0.1 percent in August after back to back months of 0.5 percent growth. Disposable income, or spending money left after taxes, experienced soft growth of 0.1% in August as well.

“It’s not the worst thing ever,” said Tom Simons, a money-market economist for Jefferies LLC to Bloomberg. “The consumer should come off the sidelines a bit more in coming months. Third-quarter consumer spending should be a little more moderate but still strong, reflecting a solid, healthy base.”

On the other hand, an uptick in hiring, cheaper gasoline prices and groceries, low-interest loans and consumer optimism suggest that consumption will deliver moderate, but healthy contributions to economic growth in the coming quarter. Economists are banking on consumption to lift the GDP growth rate to 3 percent in the current July-September performance.

While consumer confidence grew in September, that reading was at odds with the higher 5.7 percent savings rate that Americans charted in August, as higher savings usually indicate consumer anxiety and a conservative outlook on economic prospects.