Tuesday, September 30, 2003

Americans had more, spent more

By Jeannine Aversa
The Associated Press

WASHINGTON - Flush with extra cash from tax cuts, America's consumers treated themselves in August and spent with gusto, good news for the economy's revival.

The Commerce Department reported Monday that consumer spending increased by a strong 0.8 percent last month on top of an even bigger 0.9 percent advance in July as larger paychecks and other incentives from President Bush's third tax cut began to take hold.

"Consumer spending turned in another stellar performance," Wachovia economist Mark Vitner said. "Spending continues to be bolstered by the recently enacted tax cuts."

Americans' disposable incomes, or what's left after taxes, advanced by 0.9 percent in August, following a 1.5 percent jump in July.

The government attributed much of the increase in disposable incomes in both July and August to the president's tax cut, which lowered federal tax withholdings, boosting people's take-home pay.

Commerce Secretary Don Evans said the tax cuts are "helping American consumers keep more of the money they earn" and that "their increased purchasing power is strengthening our economy."

Excluding the tax impact, disposable incomes increased by a more modest 0.3 percent in July and 0.2 percent in August.

The spending and income figures are not adjusted for price changes.

Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Because of that, the behavior of shoppers is a major factor in shaping the economy's recovery.

Thus far, consumers are spending enough to keep the nation's cash registers humming and the economy's rebound chugging forward.

The economy grew at a 3.3 percent rate in the second quarter of this year, and economists are predicting that it is now gaining even more momentum.

Many analysts think that the economy is growing at a rate in excess of 5 percent in the current quarter.

Monday's report also showed that wages and salaries increased by just 0.1 percent in August, after being flat in July - a reflection of the lackluster labor market. Some economists worry about the vigor of consumer spending in the coming months if the job market doesn't improve.

Consumer spending on "durable" goods - costly manufactured products such as cars and appliances, went up by 2.8 percent in August, following a 3.3 percent increase in July.

Spending on "nondurables" such as food and clothes, rose by 0.9 percent for the second straight month. For services, spending increased by 0.3 percent in August, after a 0.5 percent gain.

Because disposable income growth outpaced spending, the nation's personal savings rate, or savings as a percentage of after-tax incomes, rose to 3.8 percent in August from 3.6 percent in July. The savings rate in August marked the best showing since February.

Local picture

The local economy got better for some and worse for others in September, according to a poll by the National Association of Purchasing Management-Cincinnati.

Compared to August, more companies said their new orders were up, but others said new orders fell, with a small number saying orders were the same.

The employment outlook improved slightly. The number of companies saying they'll add workers increased to 25 percent in September, compared with 21 percent in August.

The group's parent organization, the Institute for Supply Management, will issue its national report Wednesday.

Fiorini quits plea deal
Financial planner guilty in tax case
Firm's office space doubling
Job fair for collegians and new grads
Tristate summary
Morning memo
What's the buzz?
Americans had more, spent more
Business digest