Ahead of the Bell: US consumer spending

US consumer spending expected to show modest gain in August with incomes rising

Associated Press
US consumer spending up moderate 0.3 percent in July

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In this Saturday, June 6, 2015 photo, a customer at left pays for produce with cash to a worker at a stand at the Atlanta Farmers Market. The Commerce Department releases personal income and spending for July on Friday, Aug. 28, 2015. (AP Photo/David Goldman)

WASHINGTON (AP) -- The Commerce Department at 8:30 a.m. Eastern releases its August report on consumer spending, which accounts for 70 percent of economic activity.

SPENDING UP: Economists expect a modest 0.3 percent rise, according to a survey by data firm FactSet.

SPENDING AND INCOME: In July, U.S. consumers increased their spending by 0.3 percent as wages and salaries, the key component of income, made the biggest jump in eight months. Incomes are believed to have advanced a solid 0.4 percent in August, matching the July increase.

Economists were looking for another modest rise in spending in August, in part because retail sales posted only a slight 0.2 percent gain last month, a slowdown after a 0.7 percent jump in July.

The government on Friday issued its final estimate for overall economic growth for the spring, saying the gross domestic product expanded at an annual rate of 3.9 percent in the April-June quarter, even better than the previous estimate of 3.7 percent.

That's a strong rebound from an anemic rate of 0.6 percent in the January-March period. Much of that bounce back reflects a surge in consumer spending, which grew at a 3.6 percent rate in the spring, double the the 1.6 percent rate in the winter.

Economists believe that overall growth has slowed to something around 2.2 percent to 2.5 percent in the current quarter. Yet they expect a modest acceleration in the final three months of this year, believing that strong gains in employment will provide people with more money to spend.

Federal Reserve officials passed up a chance at their September meeting to begin raising interest rates from the record low near zero, where they have been for nearly seven years, saying that they wanted to wait given recent adverse developments which have buffeted the global economy and financial markets.

But Fed Chair Janet Yellen said in a speech last week that she still believed that the Fed will start raising rates before the end of this year as long as further progress is made toward the Fed's goals of maximum employment and inflation rising at a 2 percent annual rate.

With unemployment falling in August to a seven year low of 5.1 percent, the Fed is close to achieving its goal, but inflation has remained stubbornly low. But Yellen said she believed the forces which have kept inflation below the 2 percent goal for more than three years would fade and inflation would begin rising.

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