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Aug. consumer spending up 0.5%, driven by higher gas prices

6:37 AM, Oct 2, 2012   |    comments
AP
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WASHINGTON -- Americans boosted spending in August even though their income barely grew.

But much of the increase went to pay higher gas prices, which may have forced consumers to cut back elsewhere.

The Commerce Department says consumer spending rose 0.5% in August from July, the biggest jump since February. In July, spending rose 0.4%.

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

The spending increase in August was led by a 1.7% surge in purchases of non-durable goods, reflecting the sharp rise in gas prices.

Spending on durable goods rose 0.3%, helped by gains in auto sales. Spending on services rose just 0.2%.

Consumer spending drives nearly 70% of economic activity. High unemployment and weak wage growth have kept Americans from spending more freely, which has held back growth.

The economy grew at an annual rate of 1.3% in the April-June quarter, the government reported Tuesday. That's down from the 2% growth rate in the January-March quarter and far too weak to lower the unemployment rate, which was 8.1% in August.

Earlier this month, the government released a mixed report on retail spending showing that consumers are feeling pinched by higher gas prices.Consumers spent 0.9% more at retail businesses in August from July.

But excluding the impact of gas prices and a sizable increase in auto sales, retail sales rose just 0.1%. The retail sales report showed Americans cut back on clothing and electronics and at general merchandise outlets.

Gas prices rose more than 50 cents per gallon in July and August, but have since leveled off.

Some positive signs indicate that spending could pick up. A measure of consumer confidence jumped this month to its highest level since February.

Steady gains in home prices, along with record-low mortgage rates, have helped fuel a modest recovery in the housing market.

A report Thursday offered some hope that the job market will strengthen. Weekly applications for unemployment benefits plunged 26,000 to a seasonally adjusted 359,000. That's the lowest level in two months.

Still, most economists expect only modest hiring gains when the government releases the September employment report next Friday.

The consensus forecast is that employers added roughly 100,000 jobs, about the same as in August. Monthly job creation of at least 200,000 over time is needed to lower the unemployment rate.

Associated Press

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