Consumer Spending Increased in August

Consumer spending picked up in August even as job losses and record home foreclosures threatened the American economic expansion, economists said before a government report this week.Sales at retailers rose 0.5% after a 0.3% increase the prior month, according to the median estimate in a Bloomberg News survey before the Commerce Department’s September 14 release. Other figures this week may show the trade deficit widened in July and imports prices cooled last month.“The consumer was still in the game” in August, the chief economist at PNC Financial Services Group Inc. in Pittsburgh, Stuart Hoffman, said. “There’s going to be more hesitancy and spillover from housing in coming months that will temper economic growth, but the consumer is showing some resiliency”Rising wages have allowed spending, which makes up more than two-thirds of the economy, to hold up so far. That won’t stop the Federal Reserve from cutting interest rates next week because falling home values and the first drop in payrolls in four years raise the risk that consumers will buckle, economists said.Auto dealers led the increase in August sales, forecasts indicated. Cars and light trucks sold at an annual rate of 16.3 million last month, up from a July pace that was the weakest in almost two years, industry figures showed last week. Retail sales excluding motor vehicles increased 0.2% following a 0.4% advance in July, the survey showed.Economists predict that, while Americans have grown more concerned about declining home prices and the rising cost of credit, spending will probably slow rather than crumble.Bentonville, Ark.-based Wal-Mart Stores Inc. was among retailers that reported August sales topping analysts’s estimates. Purchases of clothing and electronics for the new school year pushed sales up 2.9%, based on results from 47 retailers, the International Council of Shopping Centers said last week.The Fed, in its regional report known as the Beige Book, said last week that, while tighter lending standards were having a “noticeable effect on housing,” the impact of the August credit-market rout on the broader economy was “limited.” Retail sales were “generally positive” according to the survey, which concluded August 27.A softening labor market may spell bigger challenges for consumers and retailers ahead, economists said.Employers unexpectedly cut 4,000 workers from payrolls in August, after a revised gain of 68,000 jobs in July that was smaller than previously reported, the Labor Department said September 7. Average weekly earnings rose to $591.50 last month from $589.81 the prior month.The drop in hiring is “collateral damage from the disruptions we saw” in financial markets last month, the chief economist at La-Salle Bank in Chicago, Carl Tannenbaum, said. “The Fed will be very hard-pressed not to reduce rates.”A Labor Department report September 13 may show the total number of Americans receiving unemployment benefits jumped last week. First-time claims probably rose to 325,000 from 318,000 a week earlier, the survey showed. A day later, the Reuters/University of Michigan preliminary consumer sentiment index for September will be little changed from the one-year low reached in August, economists said.Fed Governor Randall Kroszner said September 6 that the unraveling in mortgage lending may further erode demand for housing, “with possible implications for the broader economy” should the crisis persist. The Fed will “act as needed” to limit damage from financial market tumult, Chairman Ben Bernanke said August 31.Policy makers, who meet on September 18, may get some help in fighting inflation from slowing import prices. Prices of goods shipped to America probably rose 0.2% in August after a 1.5% gain in July, economists said before a September 14 report from the Labor Department. Moderating costs for imported commodities may signal a reduced inflation risk, giving the Fed leeway to lower rates, economists said.Finally, a September 11 report from the Commerce Department may show the trade deficit grew 1.5% to $59 billion in July from $58.1 billion in June, according to the median forecast.

Consumer Spending Increased in August

Consumer Spending Increased in August

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