By Glenn Somerville
WASHINGTON, Sept 29 (Reuters) - Hard-pressed U.S. consumers curbed their spending during August despite an unexpected jump in incomes, according to a government report on Monday that implied worry about the economy’s direction was deepening.
The Commerce Department said consumer spending was flat in August after barely edging up by a revised 0.1 percent in July, a much weaker outcome than forecast by Wall Street economists surveyed by Reuters who had a 0.2 percent spending rise.
Incomes from wages and salaries and all other sources rose by 0.5 percent in August, largely reversing July’s revised 0.6 percent drop and well ahead of forecasts for a smaller 0.2 percent gain. Incomes had been boosted early in the year by payments made under an economic stimulus program but that has largely worn off.
“These payments are now winding down,” the department said. Since about two-thirds of U.S. economic output is driven by consumer spending on goods and services and there has been a steady month-by-month loss of jobs in addition to the waning stimulus payments, prospects for spending in coming months are not promising.
“It looks like we are poised to see a real-term decline in personal consumption and that will likely result in a negative GDP number in the third quarter,” said James O’Sullivan, economist at UBS Securities in Stamford, Connecticut.
The income and spending data had no impact on financial markets, which still were grappling with news of another U.S. bank merger and with details of the huge taxpayer-financed bailout program for U.S. financial firms.
Despite higher August incomes, consumers facing higher prices for gasoline and other items were unable to save more. The personal savings rate dropped to 1 percent from 1.9 percent in July.
Meanwhile, the report pointed to persistent inflation pressures. The personal consumption expenditures index on a year-over-year basis rose 4.5 percent in August, only barely below the 4.6 percent rise posted in July. Core prices that exclude food and energy were up 2.6 percent — the highest rate since the beginning of 1995.
Core PCE was up 0.2 percent from July, in line with expectations.
Additional reporting by Richard Leong in New York, Editing by Andrea Ricci