Business

No rise in consumer spending

Spending by U.S. consumers was unchanged in August, confounding forecasts of a gain, as households retrenched in the face of rising unemployment and slumping confidence.

No change followed a 0.1 percent rise in July that was smaller than previously estimated, the Commerce Department said Monday in Washington. The Federal Reserve's preferred measure of inflation rose over the last 12 months by the most in 13 years.

Consumer spending is faltering as the boost from tax rebates fades and Americans grapple with mounting job losses, declining home-equity wealth and a credit squeeze that in recent weeks has turned into a financial meltdown. Economists surveyed by Bloomberg early this month forecast spending this quarter will be the weakest since 1991.

“There're not a whole lot of positives out there,” Daniel North, chief economist at Euler Hermes ACI in Owings Mills, Md., said in a Bloomberg Television interview. Even “without all this bailout talk,” the economy seems “pretty weak.”

Economists forecast spending would rise 0.2 percent, after an originally reported 0.2 percent increase in July, according to the median of 64 estimates in a Bloomberg News survey. Projections ranged from gains of 0.5 percent to a drop of 0.2 percent.

Incomes increased 0.5 percent after a 0.6 percent drop the prior month, Monday's report showed. The median forecast was a gain of 0.2 percent.

The report also showed inflation is eroding Americans' purchasing power. The price gauge tied to spending patterns climbed 4.5 percent from August 2007, after a 4.6 percent gain in the year ended in July.

The central bankers' preferred gauge of prices, which excludes food and fuel, increased 0.2 percent last month, and was up 2.6 percent from August 2007. The year-over-year gain was the largest since January 1995.

Adjusted for inflation, spending was also unchanged after dropping 0.5 percent in July, which was the biggest decrease since June 2004.

Concern about slower growth and rising prices led Fed policy makers on Sept. 16 to hold the benchmark interest rate at 2 percent.

“The downside risks to growth and the upside risks to inflation are both of significant concern,” Fed policy makers said after their meeting. “Economic growth appears to have slowed recently, partly reflecting a softening of household spending.”

Disposable income, or the money left over after taxes, decreased 0.9 percent after declining 0.8 percent the previous month.

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