Consumer Consumption Higher in August. Inflation Index Still Subdued

by devteam October 1st, 2009 | Share

Personal income was given a slight and unexpected boost in August, while consumption broadly advanced and inflation remained benign, a new report said Thursday.

Income levels went up 0.2% in August, doubling the consensus forecast, while the prior month’s level was given a bump in revisions too. However, compared to last year income is still down 2.6%.

The same report also showed consumption climbing. That was expected due to the widely reported success of the cash-for-clunkers program, but the data reveals that spending on autos didn’t drown out all other spending.

Consumer spending jumped a total of 1.3% in the month, two-tenths more than Wall Street’s forecast and a full percentage higher than in July.

Spending on durable goods climbed 5.3% owing to car sales, while nondurable goods saw a 2.3% gain, and the services sector advanced 0.4%.

“This is an amazing show of strength by consumers,” said Sal Guatieri from BMO. “Still, due to the weak jobs and income backdrop, tight credit standards and high debts, consumers are likely to return to the pit-stop in Q4 in the absence of another “cash-for-(insert favoured sector here)” program.”

Core inflation remains tame with a 0.1% increase for the month, or +1.3% for the year. Headline inflation was pushed 0.3% higher after a flat reading in the prior month, but the year-to-year figure is still negative at -1.3%.

“Despite reasonably healthy nominal income gains, real income growth remains soft,” said analysts from Nomura after the report. “Until real disposable income growth picks up it will be difficult to imagine a vigorous recovery in consumer spending.”

Other Important Data:

  • Personal current taxes increased $3.8 billion in August, compared with an increase of $21.5 billion in July.
  • Disposable personal income (DPI) — personal income less personal current taxes –increased $15.5 billion, or 0.1 percent, in August, in contrast to a decrease of $2.0 billion, or less than 0.1 percent, in July.
  • Personal saving — DPI less personal outlays — was $324.1 billion in August, compared with $436.0 billion in July. Personal saving as a percentage of disposable personal income was 3.0 percent in August, compared with 4.0 percent in July

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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