Income, Spending Rise More Than Expected

NEW YORK (TheStreet) -- Personal income and spending rose more than expected in August, according to the latest report from the Commerce Department.

The Bureau of Economic Analysis report said personal income grew 0.5% in August after rising 0.2% in July. Consensus expected personal incomes to rise 0.3%, according to Briefing.com.

Disposable personal income rose 0.5% after reporting no change in July, while real disposable income, which adjusts for changes in prices, rose 0.2% after decreasing the previous month.

Private wages and salaries rose $26.1 billion in August, driven by higher growth in payrolls in the services and goods producing industries. Manufacturing payrolls also expanded, though at a slower rate.

Among other income categories, personal current transfer receipts saw the biggest rise, jumping by $35.8 billion after rising just $0.5 billion in July. The change reflected unemployment legislation which boosted special unemployment benefits by $20.6 billion at an annual rate in August after reducing $17.2 billion in July.

Growth in personal spending, however, did not keep pace with the rise in incomes. Consumers continue to hold on tightly to their purse strings, with savings as a proportion of disposable personal income rising slightly to 5.8% compared with 5.7% in July.

Still, the rise in spending was more than expected. Personal consumption expenditure rose 0.4% (or 0.2% in real terms), unchanged from July and higher than the 0.3% economists were expecting. Consumers bought fewer durable goods and services. Purchases of non-durable goods, however, saw an increase of 0.8% in contrast to a decrease of 0.3%.

Personal consumption expenditure, excluding food and energy, which is the Fed's preferred measure of inflation, rose 1.4% over a year ago, the same as in June and July, indicating that inflation may be stabilizing.

--Written by Shanthi Venkataraman in New York



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