Consumer spending rose modestly in August, despite tax-rebate checks that put more money in shoppers’ pockets.
The Commerce Department reported Monday that disposable incomes–the amount left after taxes–jumped for the second straight month, reflecting the impact of tax-rebate checks and lower tax rates, both of which were generated by the recently enacted tax cut.
In August, disposable incomes increased 1.9 percent, the biggest advance since December 1993. In July, disposable incomes grew by 1.7 percent. Excluding the tax changes, disposable incomes went up by 0.3 percent in both July and August.
Spending, however, rose by just 0.2 percent.
Overall, personal incomes–which include wages, interest and government benefits–were unchanged in August, the weakest showing since January 1994, after rising by 0.5 percent in July, reflecting the labor market’s weakened state.
Before the Sept. 11 terrorist attacks, analysts were hopeful consumers would be less tightfisted and continue to keep the economy afloat.
Now most economists believe the economy will fall into recession this year. In the wake of the attacks, consumer confidence has plunged, layoffs have spiked and billions of dollars in business have been lost.
“A recession is no longer in doubt,” said Richard Curtin of the Survey Research Center at the University of Michigan. “The only issue is how long the downturn will last.”
Consumer spending accounts for two-thirds of U.S. economic activity and has kept the economy expanding, even though the economy has been slowing all year and some parts of the economy, such as the manufacturing sector, are deep in recession.
A separate report Monday indicated the manufacturing sector contracted again in September, for the 14th consecutive month. The National Association of Purchasing Management said its index of business activity fell to 47 from 47.9 in August; an index above 50 signifies growth in manufacturing. The group noted, however, that the full impact of the attacks likely was not reflected in the report.
Providing glimmers of hope were the second consecutive months of expansion in both the production index and new orders index.
