The Great Smoky Mountain Journal

Staff, Wire Reports

Posted: Sunday, January 21, 2018 06:30 PM

BUSINESS: Consumer Spending Up Mere 0.1% In August Indicating Economic Activity May Be Much Weaker During 2nd Quarter

WASHINGTON – Consumers barely boosted their spending in August, a sign that overall economic activity could be weaker this quarter.

Consumer spending rose just 0.1 percent, following a much larger 0.3 percent advance in July, the Commerce Department reported Friday. It was the smallest gain since June. The August weakness reflected a big drop in sales of durable goods such as autos.

Income growth slowed to a gain of just 0.2 percent. Wages and salaries, the biggest component, showed no gain at all after strong increases in June and July.

The overall economy, as measured by the gross domestic product, grew at a robust annual rate of 2.1 percent in the April-June quarter.

But many economists believe growth has slowed in the current July-September quarter, reflecting the impact of a string of devastating hurricanes and the subsequent slowdown in consumer spending, which accounts for nearly 70 percent of economic activity.

Some analysts say GDP growth could be as low as a 2 percent annual rate in the third quarter. They are, however, expecting a rebound in the final three months of the year, helped in part by spending on rebuilding after the hurricanes.

The personal saving rate was unchanged at 3.6 percent of after-tax incomes in August, the same as July. Both months represented the lowest saving rate since a 3.2 percent reading in December.

A measure of inflation closely watched by the Federal Reserve posted a slight 0.2 percent increase. Over the past 12 months it is up 1.4 percent, still far below the Fed's 2 percent target.

The rise in consumer prices from a year ago has been the same for the past three months and represents more than five years that prices have been below the Fed's 2 percent inflation target. Last month the Fed kept its key interest rate unchanged, but still signaled that it believed it could raise rates for a third time this year.

Many economists, however, believe the Fed will not boost rates again this year unless inflation begins moving back toward the 2 percent goal. Fed Chair Janet Yellen in a speech earlier this week acknowledged that the Fed is puzzled by the persistence of unusually low inflation and said the central bank may have to adjust the timing of future rate hikes if its belief that the slowdown is only temporary proves incorrect.