Consumers Spend More, but Mostly on Gas

Spending and incomes both grew last month, until you adjust for inflation.

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Consumer spending accelerated in August, but it's not necessarily good news. Last month, Americans increased their spending by 0.5 percent, the fastest rate since February, according to new data from the Commerce Department, but it was mostly due to growth in prices. Adjusted for inflation, spending actually slowed, from July's 0.4 percent to 0.1 percent.

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Americans also had less to spend last month; while personal income grew by 0.1 percent, disposable personal income—income minus income taxes—fell by an inflation-adjusted 0.3 percent.

Stagnant income growth means that consumer spending isn't likely to post any strong gains anytime soon.

"A faster rate of spending is going to depend on faster real income growth, and really that's going to come down to faster employment growth," says James Marple, senior economist with TD Economics. "It's just hard to see that happening in the current environment"

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Still, regardless of income, purchases of one key necessity have pushed spending higher. The latest consumer price index report showed the CPI for gasoline up 9.0 percent in August. With the price for a gallon of regular fuel at nearly $3.80 and having shown some growth in September, Marple says that gas prices could still affect next month's report.

The boost in spending and decline in income also meant that Americans socked less of their money away last month. The savings rate for August fell from 4.1 percent of disposable income to 3.7 percent. While it's hard to say what an "optimal" saving rate is, says Marple, this is a low rate, especially with an aging population.

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"The savings rate should rise going forward as people get older and save for retirement," he says, but he notes that the current low-interest rate environment doesn't encourage saving. Rather, it's designed for the opposite: to encourage borrowing and spending, especially on big-ticket goods.

While spending may have declined in real terms and income flattened last month, there are some signs that a little relief is on the way. One measure of consumer sentiment, the Conference Board's consumer confidence index, grew in September to a seven-month high. That may mean that the next consumer spending report will be a little rosier than August's.

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at