WASHINGTON -- Consumer spending rebounded in August as employment gains revived household earnings growth and encouraged Americans to return to shops and car dealerships.
The 0.5 percent increase in purchases was more than forecast and came after July saw little change, the Commerce Department said Monday. Incomes advanced, rising 0.3 percent last month as wages and salaries climbed the most in three months.
Worker pay over the past 12 months is showing its biggest gains since the end of 2012, raising the odds for improving sales at companies such as Hooker Furniture. The pickup in spending that accounts for almost 70 percent of the economy will help put the expansion on firmer footing as the housing market shows signs of fatigue.
"The consumer looks to be in a fairly healthy position," said Robert Stein, deputy chief economist at First Trust Portfolios in Wheaton, Ill. "The labor market is the key behind the income growth that we're seeing."
Another report showed that stricter lending practices since the housing crisis are keeping downward pressure on home sales, particularly those looking to buy properties for the first time. An index of contracts to purchase previously owned homes dropped 1 percent in August after a 3.2 percent gain the previous month, according to data from the National Association of Realtors.
The median projection of 67 economists for August consumer spending called for a 0.4 percent increase after a previously reported 0.1 percent drop.
Wages and salaries increased 0.4 percent, the most in three months. Compared with August 2013, worker pay rose 5.1 percent after a 5.3 percent increase, the strongest back-to-back gains since November-December 2012.
Monday's consumption data showed that after adjusting for inflation, which generates the figures used to calculate gross domestic product, consumer spending rose 0.5 percent last month, the most since March, after a 0.1 percent drop in July.
Spending on durable goods, including automobiles, increased 1.9 percent after adjusting for inflation, the most in five months, after a 0.1 percent gain the previous month. Purchases of nondurable goods, which include gasoline and clothing, rose 0.3 percent.
Vehicle purchases remain a source of strength for the economy. Sales of cars and light trucks rose to a 17.5 million annualized rate in August, the highest since January 2006, from a 16.4 million pace a month earlier, according to data from Ward's Automotive Group.
Household spending on services increased 0.4 percent after adjusting for inflation, Monday's report showed. In addition to health care, the category also includes utilities, tourism, legal help and personal care items such as haircuts.
Disposable income, or the money left over after taxes, rose 0.3 percent in August after adjusting for inflation. It increased 0.1 percent in the previous month and was up 2.7 percent from August 2013.
The saving rate fell to 5.4 percent last month from 5.6 percent in July.
Monday's report also showed that prices tied to consumer spending rose 1.5 percent in the year ended in August. Federal Reserve policymakers aim for price increases of 2 percent a year.
The core price measure, which excludes fuel and food, rose 0.1 percent in August from the previous month and was up 1.5 percent from a year ago.
Information for this article was contributed by Chris Middleton of Bloomberg News.
Business on 09/30/2014