Personal Spending Jumps In August Due To Cash For Clunkers Program

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Personal spending showed a notable increase in the month of August, according to a report released by the Commerce Department on Thursday, although the growth was largely due to increased spending on cars due to the government's cash for clunkers program.

The report showed that personal spending rose by 1.3 percent in August following an upwardly revised 0.3 percent increase in July. Economists had expected spending to rise 1.1 percent compared to the 0.2 percent growth originally reported for the previous month.

A 5.3 percent increase in spending on durable goods contributed to the stronger than expected personal spending growth, with the increase in spending on durable goods due largely to the jump in auto sales.

As mentioned above, the increase in auto sales reflected the impact of the federal Car Allowance Rebate System (CARS) program, commonly referred to as "cash for clunkers," which provided credit for customers who purchased a qualifying new, more fuel-efficient car or light truck.

Personal income increased by a much more modest 0.2 percent in August, matching the revised increase for the previous month. Income had been expected to edge up 0.1 percent after the original data showed that income was unchanged in July.

The report showed that disposable personal income, or personal income less personal current taxes, edged up 0.1 percent in August after showing a slight decrease in July.

With the jump in spending far outpacing the modest increase in income, personal saving as a percentage of disposable personal income fell to 3.0 percent in August from 4.0 percent in July.

Excluding price changes, the Commerce Department said spending increased 0.9 percent in August following a 0.2 percent increase in July, while disposable personal income fell 0.2 percent compared to a 0.1 percent drop in the previous month.

Commenting on the data, Peter Boockvar, equity strategist for Miller Tabak, said, "Now with the CARS program over, we can now better measure what the real demand is for goods and the data should be more useful in analyzing in the months ahead."

"The unwelcome backdrop though is that REAL income growth is still flat lining at best, and its savings and income growth that will drive spending looking forward as the access to credit will remain crimped," Boockvar added.

Personal spending showed a notable increase in the month of August, according to a report released by the Commerce Department on Thursday, although the growth was largely due to increased spending on cars due to the government's cash for clunkers program. The report showed that personal spending rose by 1.3 percent in August following an upwardly revised 0.3 percent increase in July. Economists had expected spending to rise 1.1 percent. (Market News Provided by RTTNews)