Consumer Spending Jumps 1.3 Percent in Aug | SalesAndMarketing.com
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Consumer Spending Jumps 1.3 Percent in Aug

Growth reflects largest increase since October 2001

"Cash for Clunkers" again helped to raise consumer spending in August, according to data released Thursday by the U.S. Bureau of Economic Analysis. The federal CARS program, which ran from July through Aug 24, 2009, helped boost new car and truck sales to grow consumer spending by 1.3 percent overall. This marks the largest increase since Oct 2001 and a substantial gain over July's revised 0.3 percent uptick.

Overall spending on goods increased by 2.5 percent. Auto categories, particularly the sale of car and truck parts, accounted for much of the 5.8 percent increase in the purchase of durable goods. Spending on non-durable goods grew 1 percent (up from a 0.3 percent increase in July) and purchases of services were up 0.2 percent (following a 0.1 percent gain the previous month).

"The black cloud over people’s psyche, I think it’s starting to lift," said Dr. Scott Testa, professor of business administration at Cabrini College in Philadelphia, who believes the increases in spending directly reflect a more upbeat consumer attitude. "I also think a lot of retailers are getting more aggressive with their pricing, especially the large big box retailers like the Wal-Marts of the world. They continue to be aggressive and gain market share and bring out compelling goods that are allowing consumers to get more bang for their buck."

Although spending increases were shadowed by slight inflation—pricing increased by 0.3 percent overall—Testa said it has not had a significant impact on consumers.

"From a historical basis, inflation is still very much in check," said Testa. "Where people really begin to feel inflation the most, especially in these economic times, are in gasoline and food and in those two areas a lot of things have been pretty much in check."

Personal income continued on an upward trend in August, growing 0.2 percent, or $19.3 billion, and resembled July's gains of $19.4 billion. The main contributor was a 0.2 percent increase in private wage and salary disbursements, which totaled an $8.5-billion increase over July's $8.6 billion growth, according to the Bureau.

Payrolls in the services-producing ($14 billion) and government ($2.5 billion) both saw increases from their respective July gains of $7.9 billion and $2.5 billion. Goods-producing ($5.5 billion) and manufacturing (down $3.3 billion) payrolls both fell. In July, goods-producing payrolls were up $0.7 billion and manufacturing rose by $4.7 billion.

"When you start seeing the unemployment numbers get a little bit better, I think you're going to start seeing good numbers like we had this month," said Testa. "It's kind of like a snowball effect…What's going to be interesting is the Christmas shopping season because I think that that is going to be the real Litmus test of what will be going on here over the next year."