Personal Income, Spending Pick Up Steam in August

In a hopeful sign for the year's closing months, consumer spending saw a sizable increase in August as Americans' income grew.

The Bureau of Economic Analysis (BEA) reported Monday that personal consumption expenditures increased $57.5 billion—0.5 percent—month-over-month in August. The increase in spending followed a meager revised increase of less than 0.1 percent for July.

Most of the increase came from a 1.9 percent improvement in purchases of durable goods, much of which came from spending on automobiles.

Spending was helped by a 0.3 percent pickup in personal income, totaling an increase of $47.3 billion.

"The storyline from last month's personal income and spending release was an increased concern of softer real consumer spending in the third quarter," said Eugenio Aleman and Michael Brown, senior economists for Wells Fargo's Economics Group. "Today's release indicates that last month's storyline may not be as accurate in light of the upward revisions to spending growth."

Another contributor in August was the modest pace of growth in personal consumption expenditures (PCE), which were up 1.5 percent year-over-year, well short of the Federal Reserve's 2 percent target for inflation. As the central bank comes closer to ending its bond-buying stimulus program and focuses on a timeline for raising short-term interest rates, soft inflation figures could mean a continued cautious stance ahead.

"Given the modest inflation readings for the PCE deflator in recent months, we expect that the Fed will be slow to raise rates, deferring to June of next year," Aleman and Brown said. "Given the strengthening domestic demand environment, it should only be a matter of time before some inflation pressures begin to build again."