Consumer Spending, Personal Income Up

Consumer spending rose 0.9% in August, its biggest advance in four months, while personal incomes edged up 0.4% for their ninth consecutive advance, the Commerce Department reported today.

The rise in consumer spending followed a 0.6% gain in July and was the largest increase since a 1.1% advance last April. The August spending rate was driven in part by strong auto sales. Since then, however, auto sales have slowed.

Nevertheless, today’s report showed that consumer spending continued to be strong at the midpoint of the July-September quarter.

Consumer spending is watched closely as a barometer of economic health since it accounts for about two-thirds of the nation’s economic activity.

The advance in personal incomes followed a 0.7% increase in July. The slower pace was attributed to strikes against several major telephone companies. Personal incomes have risen steadily since a 0.3% decline in November, 1988.

The statistics on Americans’ income growth and spending habits provided fresh evidence that the economy is not in danger of slipping into a recession.

The report also showed that Americans’ disposable, or after-tax income rose 0.4% in August, down slightly from a 0.7% after-tax increase in July.

Americans’ savings rate, savings as a percent of disposable income, fell 6.7%, down from July’s 1.7% increase.

The key component of the income category, wages and salaries, increased $9.2 billion in August, down substantially from a $23.5-billion increase in July.

Payrolls at manufacturing companies rose by $3.2 billion, up from a July increase of $2.1 billion.

On the spending side, the $31.8-billion gain in personal consumption spending, which includes everything except interest payments on debt, compared to a $21.1-billion advance in July.

Purchases of durable goods, big-ticket items such as cars expected to last more than three years, rose $22.9 billion compared to a $3.4-billion gain in July.

Purchases of non-durable goods fell $3.6 billion after increasing $4.8 billion in the previous month.

Purchases of services, which includes housing costs, rose $12.5 billion compared to a $13 billion increase in July.