Purchases increased 0.5 percent last month after little change in July, Commerce Department figures showed today in Washington. The median forecast of economists in a Bloomberg survey called for a 0.4 percent gain. Incomes increased 0.3 percent.
Employers are cutting back on dismissals and adding to headcounts, helping underpin sentiment and sustaining the purchases that make up almost 70 percent of the economy. Bigger wage gains would help provide an additional push and propel sales at companies such as Dunkin’ Brands Group Inc. (DNKN) and Hooker Furniture Corp.
“The consumer looks to be in a fairly healthy position,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, and the second-best forecaster of consumer spending over the last two years, according to
data compiled by Bloomberg. “The labor market is the key behind the income growth that we’re seeing.”
Forecasts for spending in the Bloomberg survey ranged from increases of 0.2 percent to 0.6 percent after a previously reported July decline of 0.1 percent.
Stock-index futures held earlier losses after the figures, with the contract on the Standard & Poor’s 500 Index expiring in December dropping 0.7 percent to 1,962.8 at 8:43 a.m. in New York.
A customer browses shoes at a store in New York. Disposable income, or the money left... Read More
Inflation Adjusted
Today’s consumption data showed that after adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases increased 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, following a 0.1 percent gain. Purchases of non-durable 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 outlays on services increased 0.4 percent after adjusting for inflation. In addition to health care, the category also includes utilities, tourism, legal help and personal care items such as haircuts. This typically makes it difficult for the government to estimate accurately in the preliminary report.
Disposable Income
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 prior 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. Wages and salaries increased 0.4 percent, the most in three months.
A report last week showed the U.S. economy expanded in the second quarter at the fastest rate since the last three months of 2011, as companies stepped up investment and households boosted spending. Gross domestic product climbed at a revised 4.6 percent annualized rate, up from a previous estimate of 4.2 percent, Commerce Department data showed.
Today’s report also showed that prices tied to consumer spending rose 1.5 percent in the year ended August. Federal Reserve policy makers aim for price increases of 2 percent a year.
Core Inflation
The core price measure, which excludes fuel and food, rose 0.1 percent in August from the prior month and was up 1.5 percent from a year ago.Some value-focused companies, such as Dunkin’ Brands, have faced tough competition in the low-price environment as consumers seek out the best bargains. The first half of the year was “challenging,” with middling consumer confidence and tight household budgets, while competitors gave “away key product categories free for weeks on time,” John Costello, president of the coffee and ice cream franchise’s marketing and innovation, said at a Sept. 17 investor and analyst meeting.
The Canton, Massachusetts-based company said it expects third-quarter U.S. same store sales for the coffee chain to increase by as much as 2.25 percent, less than what analysts had estimated, according to data compiled by Bloomberg.
“We’ve seen some competition get very aggressive and so our franchisees have done a really great job of holding the line on price,” he said. “We also have strong plans for the second half of the year and there are plans that will really carry through into 2015 and beyond.”
Furniture Sales
More gains in the housing industry will help Martinsville, Virginia-based Hooker Furniture (HOFT), which is “encouraged” about prospects for fall business, Chief Executive Officer Paul Toms said on a Sept. 10 conference call.“Economically, the fundamentals are in place for an improved housing market, and consumer confidence continues to strengthen,” he said.
Federal Reserve policy makers are looking for continued progress in the economy as they outline a strategy to exit from six years of unprecedented easing. Policy makers tapered monthly bond buying this month to $15 billion in their seventh consecutive $10 billion cut, according to the policy statement after the Federal Open Market Committee’s meeting in Washington.
“The labor market has yet to fully recover,” Fed Chair Janet Yellen said at a press conference following the meeting. “There are still too many people who want jobs but can’t find them.” Meanwhile, “inflation has been running below the committee’s 2 percent objective,” she also said.
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