The Economy

Consumer Spending Rises Only 0.1% in August

With income outpacing expenditures, consumers may have "a good amount of cushion to sustain spending if or as the economy slows."
Matthew HellerSeptember 27, 2019

Consumer spending, the main driver of the U.S. economic recovery, rose only slightly in August but a pickup in incomes and a strong savings rate suggest a recession is not looming.

The Commerce Department reported Friday that personal-consumption expenditures, or household spending,increased 0.1% last month, slowing sharply from the first seven months of the year, when spending rose an average of 0.5% a month.

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An increase in outlays on recreational goods and motor vehicles was offset by a decrease in spending at restaurants and hotels. Economists had forecast consumer spending gaining 0.3% last month.

As Reuters reports, “Consumer spending has been blunting some of the hit on the economy from the U.S.-China trade war, which has sunk business investment and manufacturing. But with tariffs on Chinese goods broadened to include consumer goods, spending is slowing.”

“There are worries that weak business investment and sluggish profit growth could constrain companies’ ability to continue hiring more workers, and undermine consumer spending,” Reuters added.

In another report on Friday, the Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.2% in August.

“The domestic economy is not immune to [the] headwinds” of slowing global growth and rising trade frictions, Lydia Boussour, U.S. economist at Oxford Economics, told The Wall Street Journal. “The economy is gradually cooling.”

In the wake of Friday’s data, Macroeconomic Advisers’ closely watched model for gross domestic product showed growth slowing to 1.6% in the third quarter.

But some economists were sanguine about the overall economic trend, pointing to a 0.4% increase in personal income last month and an 8.1% gain in the savings rate. With the exception of July, the savings rate has stayed above 8.0% this year.

“Wages and salaries have outpaced expenditures this year, giving consumers a good amount of cushion to sustain spending if or as the economy slows,” said Michelle Girard, chief U.S. economist at NatWest Markets.

Consumer spending in August was supported by a 0.1% gain in purchases of goods, while spending on services increased by 0.2%.

Photo by Taylor Hill/WireImage