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Thursday May 26th, 2016 12:37PM

Consumer spending rose 0.5 percent in August

By The Associated Press
WASHINGTON - 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.

Still, the increase was driven by a 1.7 percent surge in purchases of nondurable goods. That largely reflected a sharp rise in gas prices during the month. Spending on durable goods rose 0.3 percent, helped by gains in auto sales. Spending on services rose just 0.2 percent.

Income rose just 0.1 percent in August, reflecting the weak job growth. Taking into account inflation, after-tax incomes actually fell 0.3 percent in August - the poorest performance since November.

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 Tuesday. That's down from the 2 percent growth rate in the January-March quarter and far too weak to lower the unemployment rate, which was 8.1 percent in August.

Earlier this month, the government released a mixed report on retail spending that showed that consumers are feeling pinched by higher gas prices.

Consumers spent 0.9 percent more at retail businesses in August from July. But excluding the impact of gas prices and a sizeable increase in auto sales, retail sales rose just 0.1 percent. The retail sales report showed Americans cut back on clothing, electronics and at general merchandise outlets.

Gas prices rose more than 50 cents per gallon in July and August, but have since leveled off.

There have been some positive signs that spending could pick up. A measure of consumer confidence jumped this month to its highest level since February. Steady gains in home prices, along with record-low mortgage rates, have helped fuel a modest recovery in the housing market.

And a report Thursday offered some hope that the job market will strengthen. Weekly applications for unemployment benefits plunged 26,000 to a seasonally adjusted 359,000. That's the lowest level in two months.

Still, most economists expect only modest hiring gains when the government releases the September employment report next week. The forecast is that employers added roughly 100,000 jobs, about the same as in August.
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