September 27, 2013 / 1:08 PM / 4 years ago

WRAPUP 2-U.S. consumer spending rises as wages boost family income

* Spending gains 0.3 percent in August
    * Incomes grow 0.4 percent, most since February
    * Inflation shows signs of stabilizing after down-drift
    * Consumer sentiment slips in September

    By Jason Lange
    WASHINGTON, Sept 27 (Reuters) - U.S. household spending rose
in August as incomes were buoyed by solid wage gains, signs that
momentum could be growing in the economy despite months of harsh
government austerity.
    American families spent 0.3 percent more last month than the
month before, which was in line with expectations, Commerce
Department data showed on Friday.
    Higher wages drove incomes up 0.4 percent, the most since
February. Analysts said the increase could drive faster spending
in the months ahead.
    Rising wages and spending also appeared to give businesses a
little more leverage to raise prices, with inflation outside
food and energy picking up in August. That could bolster the
case for the U.S. Federal Reserve to move forward with winding
down a bond-buying stimulus program.
    "This acceleration in core inflation will likely be
encouraging to the Fed," said Millan Mulraine, an economist at
TD Securities in New York.
    The data backs the view that tax hikes and federal budget
cuts are dragging on the economy less as the year goes on.
Washington increased tax rates in January and slashed the
federal budget in March.  
    But Wall Street and the Fed have appeared increasingly
concerned that political gridlock in Washington could trigger a
government shutdown next week and perhaps a debt default after
mid-October, either of which could deliver blows to the economy.
    Worries about the future are also rising among families.
    U.S. consumer sentiment slid in September to its lowest
level in five months as Americans saw higher interest rates and
sluggish economic growth ahead, according to the final reading
of the Thomson Reuters/University of Michigan's consumer survey.
    The data had little impact on sentiment among investors, who
remain preoccupied with the potential for fiscal crises. U.S.
stocks fell and the dollar closed in on a seven-month low.
    The data from last month, however, was modestly upbeat.
    Even after taking into account tax bills and price
increases, incomes rose in August by the most since March.
    "The pick-up in income growth in August suggests that
consumption growth may even accelerate in the fourth quarter,"
said Paul Ashworth, an economist at Capital Economics in
    Indeed, the recent gains in consumer spending, while still
modest, appear to have stopped a worrisome cooling of inflation.
    Economists warn that if inflation runs too low an economic
shock could tip the economy into a spiral of falling prices and
    Core prices, stripping out volatile food and energy prices,
rose 0.2 percent in August, up from a 0.1 percent gain in July,
according to the Fed's favored gauge. 
    Analysts pointed out that annualized readings for core
inflation over the past few months now appear to be trending
higher, suggesting a turning point may have been reached.
    Still, annual inflation is lower than it was at the start of
the year, according to both headline and core measures. These
both came in at 1.2 percent in August, well below the Fed's 2
percent target.

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