By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — Consumers opened up their wallets in August and spent more in July than previously reported, suggesting that U.S. growth might not soften quite as much in the third quarter as economists had forecast.
Consumer spending rose a seasonally adjusted 0.3% last month, marking the third-fastest increase of the year, the Commerce Department said Friday. And spending in July rose twice as fast as initially estimated –— 0.2% instead of 0.1%.
Economists surveyed by MarketWatch had forecast a 0.3% increase in consumer spending and a 0.4% rise in personal income.
The larger increase in incomes allowed Americans to salt away a bit more cash. The savings rate of Americans rose to 4.6% from 4.5%. The savings rate, however, hasn’t topped 5% since late last year.
Consumer spending represents as much as 70% of the U.S. economy and is the biggest influence on growth. The bounce-back in spending could generate faster growth in the third quarter than economists had been expecting. Gross domestic product is forecast to rise 1.9%, down from 2.5% in the second quarter, according to the latest estimates.
Consumers boosted purchases of autos in August to the highest rate in more than six years, and the month is always big for back-to-school purchases. Americans spent more on durable goods and services, but purchases of everyday items was basically unchanged.
Inflation, meanwhile, edged up 0.1% in August based on the latest reading from the personal consumption expenditure price index. The core rate, which omits food and energy, rose a slightly faster 0.2%.
Both PCE indexes have risen a scant 1.2% over the past 12 months, indicating that inflation remains contained. That gives the Federal Reserve the room to continue its a massive bond-buying program meant to stimulate the U.S. economy.
The Fed surprised Wall Street earlier this month by maintaining its current rate of purchases. A big reason was the apparent slowdown in economic growth and hiring toward the end of the summer.
Yet a slew of recent indicators, including the consumer spending report, suggest the economy has not slowed all that much from the spring. The U.S. grew at a 2.5% rate in the April-to-June period