Consumer spending in U.S. slowed in August as incomes fell

Consumer spending in the U.S. slowed in August as incomes unexpectedly dropped for the first time in almost two years, forcing households to dip into savings.

Purchases rose 0.2 percent after a 0.7 percent increase the prior month, Commerce Department figures showed today in Washington. A 0.2 percent advance in prices wiped out the gain in so-called nominal, or unadjusted, spending. Incomes decreased 0.1 percent, the first decline since October 2009.

Little hiring, stagnant wages and a plunge in stocks have shaken confidence in the recovery that began two years ago, which may hurt sales at retailers like Best Buy Co. and Target Corp. The sputtering economy has prompted policy makers from President Barack Obama to the Federal Reserve to take additional action in a bid to prevent another recession.

“Consumers right now have extremely low confidence,” Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities Inc., said before the report. “They have a sour assessment of economic conditions and they are facing a lot of uncertainty about future earnings and employment prospects, and because of that there is a degree of hesitancy with respect to big ticket purchases.”

Stock-index futures held earlier losses after the report. The contract on the Standard & Poor's 500 Index expiring in December fell 1 percent to 1,144.5 at 8:33 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 1.94 percent from 2 percent late yesterday.

Survey Results

The median estimate of 81 economists surveyed by Bloomberg News called for a 0.2 percent increase in nominal sales. Projections ranged from decreases of 0.2 percent to increases of 0.4 percent. The Commerce Department revised the July spending figure from a previously reported 0.8 percent gain.

Economists had forecast incomes would rise 0.1 percent, according to the Bloomberg survey. Wages and salaries dropped 0.2 percent, a decrease that was last exceeded in July 2009.

The savings rate dropped to 4.5 percent in August, the lowest level since December 2009, from 4.7 percent the prior month.

The Federal Reserve's preferred price gauge, which excludes food and fuel costs, rose 0.1 percent in August from the prior, the smallest increase since March and less then the 0.2 percent median forecast of economists surveyed. It was up 1.6 percent over the past 12 months, the same as in July.

Payrolls Stagnate

Employment was unchanged last month, the worst reading since September 2010, and the jobless rate held at 9.1 percent, the Labor Department said Sept. 2. The report also showed average hourly earnings fell for the first time in more than three years, further stressing consumers' incomes.

Retail sales, an earlier gauge of household spending, stagnated in August, the Commerce Department said Sept. 14. Retailers like Best Buy and Target said battered consumer confidence has strained demand.

“The consumer is making very measured choices,” Best Buy Chief Executive Officer Brian Dunn said in a telephone interview on Sept. 13 after the Richfield, Minnesota-based company reported a 30 percent decline in second-quarter profit . “I don't think it's a year where someone is going to buy a TV and a tablet and a new smartphone and go to Disneyland.”

The Bloomberg Consumer Comfort Index slumped last week to the second-lowest level on record, according to the report released yesterday. The comfort gauge reached similar readings of minus 53 three times in the first half of 2009, when the economy was in the recession. It fell to its all-time low of minus 54 in November 2008 and January 2009.

Slumping Stocks

Confidence has been partly sacked by weakness in stock market. The S&P 500 Index in September is heading toward its fifth monthly loss, the longest falling streak since March 2008. The gauge has tumbled 12 percent this quarter and is down 7.7 percent for the year.

The drop in wealth may be restraining purchases of big ticket items like automobiles. Vehicle sales ran at a 12.1 million seasonally adjusted annual rate in August, Autodata Corp. said Sept. 1, down 100,000 cars from the prior month. Demand this year may not reach the 13 million that was the low end of Ford Motor Co.'s range of estimates, Chief Financial Officer Lewis Booth said Sept. 9.

Obama has been traveling the country this week to promote his $447 billion job creation plan. Speaking in Denver on Sept. 27, the president said the nation needs to reset its priorities to assure future growth.

Fed officials announced a plan last week to replace some notes in their portfolio with longer-term Treasuries to further reduce borrowing costs.