Consumer spending recovered in August as steady income growth and employment gains led more Americans to auto dealerships and retail stores, the Commerce Department said Monday. Relatively strong consumer spending can be taken as a sign the economy's recovery from the 2007-09 recession is becoming more stable.
Spending rose by a seasonally adjusted 0.5% in August after no change in July. Initially the government had reported that spending fell in July. Spending jumped 4.1% from a year ago, ahead of the pace seen in previous months.
Personal income rose $47.3 billion, or 0.3%, and disposable personal income was up $35.2 billion, or 0.3%, in August, according to the department's Bureau of Economic Analysis. Income growth has accelerated only slightly this year as wages rise at a slower pace than they did before the recession.
Since spending rose faster than incomes, the amount of money individuals save fell to 5.4% from a 20-month high of 5.6% in July. Household spending generates more than two-thirds of total economic output, so sturdy spending gains should translate into economic growth. The bounce back in spending suggests the economy continued to grow at a moderate pace in the third quarter, with further income gains and diminishing inflation giving Americans more cushion to spend in the months ahead.
The Fed's preferred gauge of inflation was up 1.5% in August from a year earlier, down slightly from the reading in July, the Commerce Department data showed. Some policymakers at the U.S. central bank have expressed concerns that inflation remains stuck well below their 2% target.