Consumer Spending Rises Due To Price Increases
Just in time to celebrate for the weekend, news hit the wires this Friday that US consumer spending increased the most in six months this past August. The rise, however, did not reflect an increase in purchases, but, rather, higher prices. Personal-consumption expenditures, such as cars, clothes and food to services like health care and travel, increased 0.5% from July, according to the Commerce Department. Consumer spending amounts to two-thirds of demand in the US economy, though US citizens remain cautious amid recession and political turmoil in Washington. Personal consumption rose 0.4% in July, but was flat or falling in the two months prior. With inflation considered, consumer spending rose only 0.1%. Gas prices are the likely culprit for the increase in spending, as they have increased approximately 47 cents a gallon since the beginning of July.
Spending was also demonstrated to have outpaced income growth last month. In August, US citizens took out savings in order to fund personal consumption, as the savings rate fell to 3.7% of disposable income from 4.1% in July. The price index for personal-consumption increased 1.5% year over year in August, according to the Commerce Department. However, the price index for energy goods and services increased 5.8%, the largest increase since June 2009.
So, in other words, it looks like the only thing beginning to be consumed here are the wallets of consumers. Although the figures demonstrate that US citizens dug deeper into their savings, the likelihood is that a great many merely went out on a limb and “charged it.”
