Saturday, September 29, 2012

Consumer Spending Up--But Only Because of Rising Gas Prices

American consumer spending spiked in August but experts are attributing the bump to higher gas prices say the splurge may actually be a bad sign for economic recovery.

'The U.S. personal income and spending data for August are worse than the headline figures suggest and indicate that subdued jobs growth is hitting incomes,' said Paul Dales, senior U.S. economist at Capital Economics.

Dales added the increase in spending "was largely due to extra spending caused by the surge in gasoline prices."

Personal consumption expenditures increased 0.5 per cent from July to August - the biggest increase since February - the Commerce Department said Friday.

Those figures measure spending on goods including cars, clothes, and food and services including health care and travel.

During the same period, gas prices rose nearly 50 cents a gallon. Factoring out increased expenses for higher fuel costs and other price gains and American consumer spending only 0.1 percent.

The numbers only look worse when you consider that income also grew 0.1 percent, taxes and inflation actually knocked American's disposable income down 0.3 percent as a whole.

That's the first decline in disposable income since November 2011, pulling American's rainy day funds spiraling down after it. In July, the savings rate tumbled from 4.1 percent of after-tax income to 3.7 percent.

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