U.S. Consumer Spending Stalls After Adjusting for Inflation

Consumer spending in the US barely rose in August after adjusting for inflation. Household purchases only rose .5% and the gain mainly reflected a .4% jump in prices, leaving so-called real spending up a mere .1%. The weak growth shows the economy is really struggling to gain momentum.

By Lorraine Woellert
September 28, 2012
Business Week

Consumer spending in the U.S. barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum.

Household purchases rose 0.5 percent, matching the median estimate of economists surveyed by Bloomberg and the biggest gain since February, according to data from the Commerce Department issued in Washington today. The gain mainly reflected a 0.4 percent jump in prices, the biggest since March 2011, leaving so-called real spending up 0.1 percent.

A slack job market and rising food and gasoline prices are squeezing households just as concern mounts that lawmakers might not be able to avoid the fiscal cliff of tax increases and government spending cuts slated to take effect next year. At the same time, rising stock prices and an improving housing market are lifting consumer confidence, which may help underpin demand.

“The consumer is not going to be able to lead the recovery,” said Ryan Sweet, a senior economist for Moody’s Analytics Inc. in West Chester, Pennsylvania, who correctly forecast the gain in spending. “We’re headed into a few months of soft consumer spending. Even though gas prices look like they may be peaking for the year, that’s going to weigh on spending for the next month or so.”

Projections for spending in the Bloomberg survey of 77 economists ranged from gains of 0.1 percent to 0.8 percent.

Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in December fell 0.6 percent to 1,432.9 at 8:35 a.m. in New York. Income Gain

Incomes rose 0.1 percent in August, matching the previous month’s gain after the Commerce Department revised down those figures. Wages and salaries also increased 0.1 percent, the report showed.

Because incomes grew less than spending, the saving rate dropped to 3.7 percent, the lowest since April, from 4.1 percent.

Disposable income, or the money left over after taxes, dropped 0.3 percent after adjusting for inflation, the weakest reading since November. It rose 0.1 percent in the prior month.

The cost of fuel continues to be a drag on buying power. The pump price for a gallon of regular unleaded gasoline averaged $3.80 through Sept. 26 compared with $3.70 in August and $3.42 the prior month, according to data from AAA, the largest U.S. auto group.

Retail Sales

Retail sales rose 0.9 percent in August, the most in six months, the Commerce Department reported earlier this month. Receipts were driven by auto dealers and service stations. Higher gasoline prices that left consumers with less to spend on other goods.

Merchants and their suppliers, including railroads and cargo companies such as Norfolk Southern Corp. (NSC), FedEx Corp (FDX) . and United Parcel Service Inc. (UPS), are reporting slowing global demand.

Bed Bath & Beyond Inc. (BBBY), the operator of more than 1,000 home-furnishing stores, this month reported second-quarter profit that trailed analysts’ estimates. Discount coupons to drive traffic cut into profit margins, Steve Temares, the Union, New Jersey-based retailer ‘s chief executive officer, said on a Sept. 19 conference call.

Employers added 96,000 workers to payrolls last month, less than the 130,000 projected, and the unemployment rate fell to 8.1 percent after 368,000 people left the workforce. The jobless rate has exceeded 8 percent for 43 months, the longest stretch since monthly records began in 1948.

Spending Breakdown

Adjusting consumer spending for inflation renders the figures used to calculate gross domestic product. Price-adjusted spending on durable goods such as automobiles climbed 0.5 percent last month, today’s report showed. Purchases of non- durable goods, which include gasoline, rose 0.3 percent, and services dropped 0.1 percent, the weakest reading since January 2011.

An index of inflation tied to spending patterns increased 1.5 percent from August 2011, compared with a 1.3 percent gain in the 12 months ended in July. The so-called core price measure, which excludes food and fuel, rose 0.1 percent from the prior month.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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