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US consumer spending rebounds in August

H.S. Borji
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US consumer spending rebounds in August

Consumer spending in the United States rebounded in August, offering hope household consumption would play a bigger role in economic growth in the third quarter.

Personal income from all sources, including wages and salaries, interest, dividends, rent and transfer payments, increased 0.3 percent in August to $47.3 billion, following a gain of 0.2 percent the previous month that was the slowest in a year, the Commerce Department reported today in Washington. Economists forecast an identical increase in August.

Private wages and salaries rose $34 billion in August, following an increase of $17.4 billion the previous month. Goods producers increased payrolls by $6 billion, while payrolls at service providers increased $24.6 billion, official data showed.

Personal spending – a measure of the goods and services purchased by US households and nonprofit institutions – increased 0.5 percent in August, following an unexpected decline the previous month. That figure was higher than the median estimate of economists, which called for 0.4 percent.

Personal spending had declined 0.2 percent in July. That was the first monthly decline since January of this year.

Earlier this month the Commerce Department said retail sales rebounded in August, rising at the fastest rate in four months.

Retail revenues increased 0.6 percent to $444.4 billion, following an upwardly revised gain of 0.3 percent in July, adding further evidence the US economy was firming in the third quarter.

Retail sales were higher across the board in August, led by a 1.5 percent increase at motor vehicle dealers. In total, 11 of the 13 major retail sub-sectors reported growth, official data showed.

Household consumption played a lesser role in the economy’s bigger than expected rebound in the second quarter. Personal consumption expenditure increased 2.5 percent in the April to June period, the Commerce Department confirmed last week in a revised estimate. Real GDP growth was revised upward to 4.6 percent annually in the June quarter, led by a 9.7 percent gain in fixed business investment.

Economic growth is expected to average around 3 percent in the second half of the year, but weak earnings growth and an uneven labour market threaten to hamstring consumer spending moving forward. Consumer spending accounts for more than two-thirds of the US economy, and is a key driver of economic growth.

The Commerce Department will post an initial estimate of third quarter growth on October 30.

The Federal Reserve expects the economy to grow between 2 percent and 2.2 percent this year, according to a revised summary of economic projections released earlier this month. The central bank is expected to do away with quantitative easing next month when the Federal Open Market Committee coalesces in Washington.

On Friday the Labor Department will release its September jobs report. Although economists anticipate another strong month of job creation, average earnings are forecast to increase only 0.2 percent, unchanged from the previous month.

Stubbornly low wage growth has been a common feature of the economy following the Great Recession. Income growth has averaged around 2 percent annually since the recession ended, well below the long-run average of around 3.5 percent.

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