Ahead of the Bell: US consumer spending

US consumer spending expected to rebound in August, helped by stronger auto sales

Associated Press
US consumer spending up 0.5 percent in August
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In this Sept. 4, 2014 photo, Frances Gurley shops at a Family Dollar store in Wilmington, N.C. The Commerce Department releases its August report on consumer spending, which accounts for 70 percent of economic activity, on Monday, Sept. 29, 2014. (AP Photo/The Star-News, Matt Born)

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

SPENDING REBOUND: The expectation is that consumer spending rose a solid 0.4 percent in August, according to a survey of economists by data firm FactSet. Analysts expect the income rose a modest 0.3 percent in August after a 0.2 percent increase in July.

AUTO DIP: Spending edged down 0.1 percent in July, reflecting a slowdown in auto sales. But with unemployment falling, more job growth is expected to translate to stronger consumer spending in the months ahead.

Many believe spending received a boost in August thanks to a strong rebound in auto sales. Retail sales, a big component of consumer spending, rose 0.6 percent in August with demand for motor vehicles accounting for nearly half of that increase. Spending also picked up at restaurants and stores selling furniture, electronics, sporting goods and building materials.

The government on Friday reported that the overall economy as measured by the gross domestic product grew at a rapid 4.6 percent annual rate in the April-June quarter, a significant rebound after the economy had gone into reverse, plunging at a 2.1 percent rate in the first quarter.

Many expect that the momentum created in the spring will keep activity rising at a solid pace for the rest of this year and into 2015. The latest outlook from top forecasters with the National Association for Business Economics predicts the economy will grow at a healthy 3 percent rate in the second half of this year and for will average 3 percent in 2015, which would give the country its strongest annual growth rate in a decade.

Since the recession ended five years ago, growth has averaged a lackluster 2 percent. The optimism for a breakout to higher growth stems on the belief that rising employment will generate growing incomes that will support more consumer spending. In addition, the significant drag from cutbacks in government spending and higher taxes are beginning to lessen.

Responding to stronger job growth, consumer confidence rose in September to 84.6, the highest point in 14 months and the second highest level in the past seven years.

The Federal Reserve is continuing to pursue its ultra-low interest rate policies as a way to make sure that the forecasts for stronger growth are not suddenly derailed by rising borrowing costs. At its last meeting two weeks ago, it retained language that it expected to keep rates low for a "considerable time," which was seen as a strong signal by many economists that its key short-term interest rate will remain at a record low near zero until next summer.

The Fed has been able to maintain low rates because inflation has remains well below the Fed's 2 percent target.

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