Personal income, spending climb in Aug.

September 29, 2014

WASHINGTON (9/30/14)--Real consumer spending and personal income increased in August by 0.5% and 0.3% respectively, according to a government report released Monday.

The U.S. Commerce Department found that automobile, electronics and furniture sales drove consumer spending, with annualized car and truck sales reaching its highest level since January 2006. (MarketWatch Sept. 29). The growth in expenditures on services was also "the fastest of the year," according to Moody's ( Sept. 29).

Meanwhile, the Commerce Department data also showed that rental and transfer earnings were the top contributors to income growth last month, and that wages expanded by a five-month high of 0.4%

The savings rate dropped by 0.2%, from a revised 5.6% in July. It has remained greater than 5% for five months in a row. Moody's described the trend as "somewhat of a surprise" when weighed against improving economic conditions and more health insurance coverage. Healthcare spending, the ratings and research firm noted, has been "surprisingly weak," with the Bureau of Economic Analysis reporting negligible real growth over the last two months.

MarketWatch said the Commerce Department data imply that the pace of economic growth has remained "moderate" in the third quarter, with consumption comprising more than two-thirds of economic activity in the United States. Lower energy costs and an abatement of food price increases led to a 0.3% fall in nondurable good expenditures. Core inflation only increased by only 0.1% in August, which might lead the Federal Reserve to refrain from ratcheting up short-term interest rates, MarketWatch reported.

Long-term consumption appears to be on the rise, according to Moody's, with year-over-year real spending growth at its highest level of 2014 in August.

Analysts for the firm said that "consumer fundamentals are healthy," buoyed by low debt burdens, high asset values and job and wage growth, despite the latter remaining modest. They added that confidence is still weak, perhaps due to relatively timid income and job gains throughout the recovery in addition to current global tumult.