Consumer Spending Outstrips Small Gain in Personal Incomes

Consumers taking advantage of bargains increased their spending in August by 0.9% even though incomes rose only 0.4%, the government said Friday in another report pointing toward continued economic expansion.

The Commerce Department said the jump in consumer spending followed a 0.6% gain in July and was the largest since a 1.1% advance in April.

Income growth slowed from a 0.7% advance in July, largely because of strikes against several major telephone companies. Nevertheless, personal incomes have increased for nine consecutive months.

“Consumers are still basically positive in their attitudes, largely based on a favorable job outlook,” said David Jones, an economist with Aubrey Lanston & Co., a New York government securities dealer.

Declining Prices Cited

“As long as the job sector holds up, and it certainly seems likely to do so, I think consumers will continue to spend, at least when they’re given a bargain,” Jones said.

Jones pointed to strong rebate-induced sales of automobiles in August as an example of consumer bargain-buying and a major element of that month’s consumer spending growth.

“In a sense, that’s good,” he said. “As long as consumers buy only when given a bargain, that will limit the potential for inflation.”

William K. MacReynolds, forecasting director for the U.S. Chamber of Commerce, also attributed the boost in consumer spending partly to declining prices and said the report “indicates that consumer confidence will keep the economy from slipping into a deep downturn.”

“This is a good sign for businesses which have suffered from slow growth in consumption and falling profits since last October,” he said.

Consumer spending is watched closely as a barometer of economic health because it accounts for about two-thirds of the nation’s economic activity. Other recent reports show an economy continuing to grow, although at a slower pace as the Federal Reserve continues to keep short-term interest rates high to contain inflation.

Some Production Lags

Personal consumption spending, which includes everything except interest payments on debt, rose $31.8 billion in August, compared to a $21.1-billion advance in July.

Purchases of durable goods--such as cars and other big-ticket items expected to last more than three years--rose $22.9 billion after gaining $3.4 billion in July.

MacReynolds said the resurgence in durables spending doesn’t create new inflationary pressures because prices in that sector have risen less than 2% in the last year and “durables production has lagged behind the rest of the economy, leaving ample capacity to expand.”

Non-durable goods purchases 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.