Spending Rises, but Consumer Growth May Be Short-Lived

Consumer spending rose in August at the fastest pace in three months as Americans flocked to auto showrooms to take advantage of steep discounts. But incomes were unchanged, prompting speculation that the boom may be brief.

The Commerce Department said Monday that spending, which accounts for about two-thirds of the nation’s economic activity, rose 1% in August.

It was the biggest increase since a 1.1% jump in May and followed a 0.1% dip in July. Analysts said the August surge was due largely to sales of cars at bargain rates that may not last.

There were no gains in incomes in August, the government said, as private wages and salaries actually fell.

Analysts said consumers, already burdened by heavy debt, used savings to help finance their purchases. The savings rate--savings as a percentage of income after taxes--fell to 3.6% in August from 4.5% a month earlier.

Some analysts said income growth and a slower advance in spending could mean healthy economic expansion for the remainder of the year.

There were other signs of sluggishness Monday that helped hold down the stock market. The Dow Jones industrial average closed down 27.82 points. The yield on the 30-year Treasury bond fell to 6.44%, moving in the opposite direction of its price.

The Commerce Department also reported that construction spending fell 0.2% in August--the first decline in three months--after hitting a record high in July. But single-family home building rose for the second straight month as mortgage rates remained favorable.

The National Assn. of Purchasing Management reported that manufacturing was still sluggish in September. The group’s index rose to 48.3% from 46.9%, but was still below a 50% reading associated with factory expansion.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Personal Income

Seasonally adjusted annual rate, in trillions of dollars: $6.07, August 1995

Source: Commerce Department

Personal Spending

Seasonally adjusted annual rate, in trillions of dollars: $4.93, August 1995

Source: Commerce Department