Higher gas costs push US consumer spending up

WASHINGTON (AP) – Americans boosted their spending in August even though their income barely grew. Much of the spending increase went to pay higher gas prices, which may have forced consumers to cut back elsewhere.

The Commerce Department said Friday that consumer spending rose 0.5 percent in August from July. It was the biggest jump since February.

Gas prices rose nearly 50 cents per gallon in July and August, but have since leveled off. Excluding the impact of higher gas prices and other price gains, spending ticked up only 0.1 percent last month.

Income grew only 0.1 percent, too. But after accounting for inflation and deducting taxes, income actually fell 0.3 percent – the poorest performance since November.

The increase in prices and slower growth in pay forced people to save less.

“The US personal income and spending data for August are worse than the headline figures suggest and indicate that subdued jobs growth is hitting incomes,” said Paul Dales, a senior U.S. economist at Capital Economics, a research firm. The increase “was largely due to extra spending caused by the surge in gasoline prices.”

High unemployment and weak wage growth have kept Americans from spending more freely, which has held back growth. Consumer spending drives nearly 70 percent of economic activity.

The economy grew at an annual rate of 1.3 percent in the April-June quarter, the government reported Thursday. Most economists say growth rate will likely hover around two percent in the July-September quarter, a rate that is far too weak to lower the unemployment rate.