Tags: consumer | spending | economy | income

Consumer Spending Stalls After Adjusting for Inflation as Incomes Stagnate

Friday, 28 September 2012 08:35 AM

Consumer spending in the U.S. barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum.

Household purchases rose 0.5 percent, matching the median estimate of economists surveyed by Bloomberg and the biggest gain since February, according to data from the Commerce Department issued in Washington.

The gain mainly reflected a 0.4 percent jump in prices, the biggest since March 2011, leaving so-called real spending up 0.1 percent.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

A slack job market and rising food and gasoline prices are squeezing households just as concern mounts that lawmakers might not be able to avoid the fiscal cliff of tax increases and government spending cuts slated to take effect next year. At the same time, rising stock prices and an improving housing market are lifting consumer confidence, which may help underpin demand.

“Job creation has slowed and income growth has been therefore quite paltry. We need stronger job growth,” said John Ryding, chief economist at RDQ Economics in New York before the report.

Projections for spending in the Bloomberg survey of 77 economists ranged from gains of 0.1 percent to 0.8 percent.

Incomes rose 0.1 percent in August, matching the previous month’s gain after the Commerce Department revised down those figures. Wages and salaries also increased 0.1 percent, the report showed.

Because incomes grew less than spending, the saving rate dropped to 3.7 percent, the lowest since April, from 4.1 percent.

Disposable income, or the money left over after taxes, dropped 0.3 percent after adjusting for inflation, the weakest reading since November. It rose 0.1 percent in the prior month.

The cost of fuel continues to be a drag on buying power. The pump price for a gallon of regular unleaded gasoline averaged $3.80 through Sept. 26 compared with $3.70 in August and $3.42 the prior month, according to data from AAA, the largest U.S. auto group.

Retail sales rose 0.9 percent in August, the most in six months, the Commerce Department reported earlier this month. Receipts were driven by auto dealers and service stations. Higher gasoline prices that left consumers with less to spend on other goods.

Merchants and their suppliers, including railroads and cargo companies such as Norfolk Southern Corp., FedEx Corp. and United Parcel Service Inc., are reporting slowing global demand.

Bed Bath & Beyond Inc., the operator of more than 1,000 home-furnishing stores, this month reported second-quarter profit that trailed analysts’ estimates. Discount coupons to drive traffic cut into profit margins, Steve Temares, the Union, New Jersey-based retailer ‘s chief executive officer, said on a Sept. 19 conference call.

Employers added 96,000 workers to payrolls last month, less than the 130,000 projected, and the unemployment rate fell to 8.1 percent after 368,000 people left the workforce. The jobless rate has exceeded 8 percent for 43 months, the longest stretch since monthly records began in 1948.

Adjusting consumer spending for inflation renders the figures used to calculate gross domestic product. Price-adjusted spending on durable goods such as automobiles climbed 0.5 percent last month, today’s report showed.

Purchases of non- durable goods, which include gasoline, rose 0.3 percent, and services dropped 0.1 percent.

An index of inflation tied to spending patterns increased 1.5 percent from August 2011, compared with a 1.3 percent gain in the 12 months ended in July. The so-called core price measure, which excludes food and fuel, rose 0.1 percent from the prior month.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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Consumer spending in the U.S. barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum.
Friday, 28 September 2012 08:35 AM
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