Consumer Spending Soared In August

Americans stepped up their spending in August, defying some of the weakest readings on consumer sentiment and confidence in years.

Personal consumption expenditures rose 0.9 percent, or $190.8 billion, the Commerce Department’s Bureau of Economic Analysis said Wednesday, after a revised 0.1 percent increase in July. Adjusted for inflation, spending increased 0.6 percent, following a 0.1 percent gain the prior month.

The burst has not been matched by how households say they feel. The Conference Board’s consumer-confidence index fell to 81.9 in September, the lowest level since 2014. The University of Michigan’s sentiment index finished September at 48.1, down from 51.7 in August and 15 percent below its January reading. Consumers have pointed to high prices, gasoline costs and a weaker outlook for jobs and business. Those worries have not shown up at the cash register.

Spending on goods increased $114.1 billion and spending on services rose $76.7 billion. The largest contributions came from other nondurable goods, gasoline and other energy products, food services and accommodations, and motor vehicles and parts. Recreational goods also rose. Recreation services were the exception, falling $10.3 billion.

Incomes rose at a level consistent with the Federal Reserve’s two percent inflation goal. Personal income increased 0.2 percent, or $66.6 billion, less than economists had expected, as private wages and government social benefits rose. Disposable personal income—income after taxes— increased 0.3 percent. After inflation, real disposable income was unchanged.

Households spent more of what they earned, which typically implies consumers are confident about their employment and income prospects. The personal saving rate fell to 4.1 percent from a revised 4.6 percent in July.

Prices moved higher as well, highlighting still stubborn inflation and the toll of the rise in gasoline prices triggered by the Iran war. The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 0.3 percent in August after a 0.1 percent increase in July. Excluding food and energy, prices rose 0.2 percent. From a year earlier, the PCE index was up 3.4 percent, matching the July yearly gain, and the core index was up 3.0 percent—still above the Fed’s target, though both annual readings came in below forecasts.

Wednesday’s report incorporated the annual update of the national accounts, with revisions to personal income and outlays beginning in January 2021. Those revisions also lowered previously published inflation readings.
Consumer spending accounts for about two-thirds of U.S. economic output. The August rebound, after a soft July, left demand firm even as higher prices and borrowing costs continued to weigh on household surveys.