U.S. consumers increased their spending slightly last month as their income grew at the fastest pace in six months. The figures point to only modest economic growth in the July-September quarter.
Consumers' spending on goods and services rose 0.3 per cent in August, the U.S. Commerce Department said Friday. That's up from a 0.2 per cent gain in July, which was slightly more than the 0.1 per cent reported last month.
Income rose 0.4 per cent in August, the best gain since February and up from a 0.2 per cent July increase. Private wages and salaries rose 0.5 per cent while the government wages and salaries rose 0.2 per cent.
The government figures would have been higher if not for forced federal furloughs that reduced wages and salaries by $7.3 billion.
Consumer spending key to economic growth
Consumer spending drives 70 per cent of economic activity. Many analysts say the increases are not enough to accelerate economic growth in the third quarter from the 2.5 per cent annual rate in the April-June quarter.
"With more money coming in, consumers spent a little, just a little, more freely," said Jennifer Lee, senior economist at BMO Capital Markets.
Paul Ashworth predicts the economy is growing at an annual rate of two per cent to 2.5 per cent in the July-September quarter. Still, the pickup in August could signal stronger growth in the final three months of the year.
Other economists are less hopeful. Peter Newland, an economist at Barclays, said that the modest increase did not change Barclay's forecast for growth at a 1.7 per cent rate.
Americans saved some of the extra money they earned last month. The personal savings rate edged up to 4.6 per cent of after-tax income, a slight improvement from 4.5 per cent in July.
Inflation still low
Consumers are benefiting from mild inflation. An inflation gauge tied to consumer spending increased 1.2 per cent over the past 12 months, well below the Federal Reserve's two per cent target. Some Fed officials have argued that the central bank should not start reducing its support for the economy until inflation has risen closer to the Fed's target.
A recent spike in interest rates and mixed signals from the job market were key reasons the Fed decided held off last week on reducing its $85-billion US a month in bond purchases. The Fed also scaled back its economic growth estimate for this year and next.
There are some signs that consumers may be better positioned to step up spending soon.
The number of people seeking unemployment benefits has sunk to its lowest point in six years because few companies are laying anyone off anymore. That has led some economists to predict that employers added 200,000 jobs or more jobs in September — the most since February.
And gas prices are falling again. The average national price for a gallon (3.8 litres) of regular gas on Thursday was $3.43. That's 11 cents cheaper than a month ago and the lowest since January.
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