Consumer spending rose $57.2 billion ├â┬ó├óÔÇÜ┬¼├óÔé¼┬Ø 0.5 percent ├â┬ó├óÔÇÜ┬¼├óÔé¼┬Ø in August, but personal income improved just $15 billion, 0.1 percent, the ""Bureau of Economic Analysis"":http://bea.gov/newsreleases/national/pi/2012/pdf/pi0812.pdf reported Friday. While the increase in spending matched economist expectations, the increase in incomes was half of what had been forecast.
[IMAGE]BEA also revised the report for July which had originally shown spending up $46.0 billion while incomes rose $42.3 billion. With the revision, the spending increase was cut to $45.4 billion while incomes rose $18.5 billion.
The continued increase in spending is an encouraging sign for third quarter GDP. Consumer spending is roughly 70 percent of GDP. In the first two months of the third quarter, consumer spending is up $34 billion over the second quarter. By the same measures, personal spending for the entire second quarter was up about $35.7 billion from the first quarter.
Still, the monthly income-spending report shows signs of a weak labor market, as wages rose just $5.5 billion in August after improving almost $8.5 billion in July. Within the goods-producing sector, aggregate wages dropped $6.4 billion, but wages increased in the service sector.
[COLUMN_BREAK]Disposable personal income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô essentially after-tax income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose $12.5 billion in August after growing $15.4 billion in July. Personal savings for August fell $47.4 billion.
Personal savings as a percentage of disposable (after tax) income fell to 3.7 percent in August from 4.1 percent in July. Despite continuing low interest rates, personal interest payments (non-mortgage interest) rose to $171.7 billion in August from $169.2 in July as consumers upped their borrowing.
Government transfer payments ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô Social Security, Medicare and unemployment insurance ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô fell $1.4 billion to $2.4 trillion in August due primarily to a cut in unemployment insurance payments.
The drop in unemployment insurance payments was the eighth consecutive monthly decline ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô reflecting congressional mandated reductions.
The increase in personal consumption was primarily due to a higher spending on goods, up $46.2 billion, while spending on services rose $11.1 billion. The increased spending on goods though was heavily weighted to non-durable goods, $42.2 billion, compared with $4 billion for durable goods, suggesting consumers might be reluctant to spend on higher ticket items which are often financed through borrowing.
The Personal Consumption Expenditure (PCE) Price Index ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô often considered the Federal Reserve's favored measure of inflation ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose 0.4 points in August, the sharpest increase of the year, and was up 1.5 percent in the last year. In July, the index saw a year-over-year increase of 1.3 percent.
The ""core"" PCE Index ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô excluding food and energy ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose 0.1 points in August and was up 1.6 percent in the last year, unchanged from July.