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We're spending more, but making about the same

Consumer spending rose in August, thanks to higher gas prices, while incomes barely budged, government data showed Friday.

The Commerce Department said consumer spending rose 0.5 percent in August from July, the biggest jump since February. The increase was led by a 1.7 percent surge in purchases of nondurable goods, reflecting the sharp 28.2 cents per gallon rise in gas prices during the month. Spending on durable goods rose 0.3 percent, helped by gains in auto sales. Spending on services rose just 0.2 percent.

Income rose just 0.1 percent in August, reflecting the weak job market. Taking into account inflation, after-tax incomes actually fell 0.3 percent in August, the poorest performance since November.

Consumer spending accounts for 70 percent of U.S. economic activity. The data suggest growth in 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 index rose 1.5 percent after increasing 1.3 percent in July.

However, the Federal Reserve's preferred inflation 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 U.S. central bank has a 2 percent inflation target and the moderate rise in the PCE index last month should see the Fed 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.

Reuters and The Associated Press contributed to this report.

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