Personal Spending Rises 0.8% in August

U.S. personal spending posted another healthy gain in August, the government said Monday in a report boosting hopes that the crucial household sector will be able to support the shaky economic recovery.

The Commerce Department said spending grew 0.8% in August after an upwardly revised 0.9% increase in July. Personal income, propelled by a large tax cut enacted by Congress in the spring, gained 0.2% in August.

“I think the financial position of consumers is generally strong,” said Michael Moran, chief economist with Daiwa Securities America in New York.

Lower tax withholding rates and the advance tax credit checks sent in July and August to families with children gave disposable personal income -- personal income minus taxes and other bills -- a shot in the arm. Disposable income grew 0.9% after a 1.5% jump in July.

But consumers did not pour all of the extra money into spending, as the personal saving rate -- savings as a percentage of disposable income -- grew for a second straight month, to 3.8%.

In late July and early August, the government mailed 22.8 million tax credit checks worth a total of $13.7 billion.

The other major part of the tax package, a drop in the tax withholding rates for paychecks, took full effect in July.

In its report Monday, the government said tax withholdings were cut at an annual rate of $45.8 billion in August and July.

Commerce Secretary Don Evans said the data showed the tax cuts were working. “This latest round of economic data is further proof that the president’s tax plan is helping American consumers keep more of the money they earn,” he said.

Economists closely watch consumer spending, which makes up about two-thirds of overall economic activity. With extra cash in their wallets, consumers should spend robustly in the second half of the year, according to economists. The economy grew at a 3.3% annual rate in the second quarter, but many Wall Street analysts think it will speed up sharply in the third quarter. Daiwa’s Moran said he expected economic growth at a 5.2% annual rate in the July-September quarter.

Elsewhere in Monday’s report, the price index for personal spending rose 0.3%, its biggest gain since March. Excluding the volatile food and energy categories, though, the index was up a smaller 0.1%.