U.S. consumer spending flat in August as auto purchases drop

WASHINGTON (AP) — U.S. consumer spending in August turned in the weakest performance in five months, reflecting a drop in spending on autos. Income growth also slowed as wages and salary gains slowed following four strong months.

Consumer spending was unchanged last month after solid gains of 0.4 percent in July and 0.3 percent in June, the Commerce Department reported Friday. It was the poorest showing since a similar flat reading in March.

Personal incomes rose 0.2 percent last month, just half the gain in July. It was the weakest showing since a 0.1 percent drop in February. Wages and salaries, the biggest income category, were up just 0.1 percent after two months of 0.5 percent increases.

The August spending slowdown is expected to be temporary. Economists are counting on consumers to help lift the economy to growth, as measured by the gross domestic product, of around 3 percent in the current July-September performance. That would be a significant improvement from anemic growth that has averaged just 1 percent over the past three quarters.

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For August, purchases of durable goods fell 1.3 percent, with most of that decline reflecting the fall-off in auto sales. Purchases of non-durable goods were down 0.2 percent. Sales of services, which include utilities, rose 0.3 percent.

The small rise in incomes and the unchanged performance of spending meant that the saving rate rose to 5.7 percent, up from 5.6 percent in July.

A key measure of inflation preferred by the Federal Reserve was up a tiny 0.1 percent in August and has risen just 1 percent over the past year. Excluding volatile food and energy, this inflation measure is still up just 1.7 percent, below the Fed’s 2 percent target for inflation.

The central bank last week left its key interest rate unchanged, though sent a strong signal that it was likely to boost the rate before the end of this year. The Fed has not raised rates since one quarter-point hike last December. Muted inflation have given the Fed leeway to keep interest rates at ultra-low levels.