Strong Income Gains Boost Consumer Spending in August

Total personal income in the U.S. increased in August by 0.3% on a nominal basis. Wages and salaries, the largest component of personal income, rose by a robust 0.5%. Additionally, the increase in July personal income was revised up from 0.4% to 0.5%, and the wages and salaries component was revised up from an increase of 0.5% to 0.6%.

Real disposable income (adjusted for taxes and inflation) increased by 0.3%, while real personal consumption expenditures moved up by 0.4%. With the increase in spending outpacing real income growth, the saving rate edged down from 4.7% in July to 4.6% in August. Spending on durable goods increased by 1.2%, while spending on nondurable goods and services rose by 0.6% and 0.3% respectively.

On a year-to-year basis, incomes and spending moved higher in August:

• Real disposable income growth slowed slightly in August, rising by 3.2% versus 3.3% in July
• Real personal consumption expenditures were up by 3.2%,  
• Growth in real spending on goods (4.0%) outpaced spending on services (2.8%) although in dollar terms, Americans spend more than two times as much on services as they do goods.

Consumer prices were unchanged over the month in August but were up by 0.3% over the year. Excluding food and energy, prices advanced by 1.3%. The current low-inflation environment has helped support consumer spending in the absence of stronger hourly wage gains.

Although personal income growth was a little lower in August than expected, consumer spending is supporting economic growth. Households are feeling more confident about the economy and their personal financial outlook. Consumers are using credit more freely while household wealth has reached record levels buoyed by financial market returns and increases in property values. 

Source:  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm