September 28, 2012 / 1:08 PM / 5 years ago

Consumers lift spending to pay for pricier gasoline

Shoppers checkout at a Target store in Falls Church, Virginia May 28, 2010. U.S. consumer spending was unexpectedly flat in April but real disposable incomes recorded their biggest increase in nearly a year a government report showed on Friday. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) - Consumer spending rose in August by the most in six months as households stretched to pay for higher gasoline prices, according to a government report on Friday that pointed to lackluster economic growth in the third quarter.

The Commerce Department said consumer spending increased 0.5 percent after an unrevised 0.4 percent gain in July. When adjusted for inflation, spending edged up 0.1 percent after increasing 0.4 percent in July.

Consumer spending accounts for about 70 percent of U.S. economic activity and the second straight monthly increase mostly reflected higher gasoline prices, which rose 28.2 cents per gallon last month, though automobile purchases also helped.

“With other sectors of the economy slowing down, relying on consumers is not the exact position we want to be in right now when incomes are slowing sharply,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.

The U.S. dollar fell slightly against the euro and the yen after the data. Major U.S. stock index futures edged lower in early trading, while the 30-year Treasury bond price rose.

Spending on nondurable goods jumped 1.7 percent in August after increasing 0.8 percent the previous month. Household spending on services rose a modest 0.2 percent compared to 0.3 percent in July.

With the inflation adjusted spending barely rising last month, growth in real consumer spending is unlikely to improve much this quarter from the tepid 1.5 percent annual pace recorded in the April-June period.

Slower consumer spending and a drop in farm inventories due to a severe drought in the Midwest held gross domestic product growth to a 1.3 percent pace in the second quarter, a step down from 2 percent in the first three months of the year.

With gasoline prices rising, inflation pressures picked up a bit last month. A price index for personal consumer expenditures increased 0.4 percent, the largest gain since March last year, after being flat in July.

In the 12 months through August, the PCE price index rose 1.5 percent after increasing 1.3 percent in July.

However, a measure which strips out food and energy costs, rose only 0.1 percent from July. The index advanced by the same margin in July.

In the 12 months to August, the core PCE index, increased 1.6 percent - matching July’s increase.

The Federal Reserve has a 2 percent inflation target and the still-moderate pace of inflation should give the U.S. central bank comfort to maintain its accommodative monetary policy stance for a while as it seeks to spur job growth and domestic demand.

Income nudged up 0.1 percent but was eroded by the rise in inflation. The amount of income at the disposal of households after accounting for inflation and taxes fell 0.3 percent after ticking up 0.1 percent in July. That was the first decline since November.

With spending outstripping income growth, the saving rate slipped 3.7 percent last month from 4.1 percent in July.

Reporting by Lucia Mutikani; Editing by Neil Stempleman

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