Consumers lift spending to pay for pricier gasoline

Fri Sep 28, 2012 9:08am EDT
 
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By Lucia Mutikani

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.   Continued...

 
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