1 October 2002, 09:02  U.S. August Personal Incomes Rise 0.4%; Spending Up

/www.bloomberg.com/By Monee Fields-White and Carlos Torres
Washington, Sept. 30 (Bloomberg) -- U.S. wages, salaries and other personal incomes rebounded in August, while spending increased for a third straight month.
Incomes rose 0.4 percent after no change in July, the Commerce Department said. Consumer spending on goods and services rose 0.3 percent last month following a 1 percent increase the prior month.
Personal incomes are 3.5 percent higher than they were last year at this time, giving consumers the wherewithal to spend. That's vital for a sustainable recovery because spending accounts for two-thirds of the economy. August's 12-month increase in incomes is the largest since May 2001.
``The income numbers have been pretty decent in the past year,'' said Henry Willmore, chief U.S. economist at Barclays Capital Inc. in New York. That suggests consumer spending will be ``solid, but unspectacular.''
Economists had expected a 0.5 percent increase in both income and spending during August, based on the median of 27 estimates in a Bloomberg News survey.
Disposable income, or the money left over after taxes, increased 0.4 percent in August, twice the July rise. Wages and salaries increased 0.5 percent after falling 0.3 percent.
The personal savings rate rose to 3.6 percent in August from 3.5 percent. The figure includes current income from wages, salaries, businesses and government payments against spending. It doesn't account for borrowed money, income from investments, or withdrawals from prior savings.
Wages and Salaries
Wages and salaries, which make up more then half of all incomes, rose 1.7 percent from August 2001.
Last month, average weekly earnings rose 0.6 percent after falling 0.7 percent the month before, according to the Labor Department. And workers' average hourly earnings rose 0.3 percent, or four cents, in August.
``This clearly shows how critical it is for payrolls to expand, even if it is slowly,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. The economy added jobs in August for the fourth consecutive month and the unemployment fell to a five-month low of 5.7 percent.
Home refinancing is providing extra money as homeowners take advantage of falling mortgage rates and rising home values. Homeowners are expected to take out about $100 billion worth of equity this year and save about $100 a month because of the lower rates, according to Freddie Mac, the No. 2 buyer of U.S. mortgages.
Consumer Spending
Spending on durable goods such as autos, appliances, and other big-ticket items, rose 1.4 percent in August after surging 5.2 percent the prior month, today's report showed. Ford Motor Co., General Motors Corp. and DaimlerChrysler AG lured shoppers with zero-interest loans to clear 2002 models, making August the best month of the year for car sales.
Spending on non-durable goods rose 0.2 percent after increasing 0.3 percent. Spending on services, which account for half of the report, increased 0.2 percent after rising 0.6 percent in July.
Retail sales rose in August for a third straight month, the longest string of gains since December 2000 through February 2001. Sales of furniture also boosted August sales, rising 1.7 percent. Last month's gain was the biggest since November.
Pier 1 Imports Inc.'s sales in the period ended Aug. 31 increased 15 percent to $410.9 million from $357.2 million, the company said in a statement last week.
The gain in sales comes as confidence in the economy has fallen for fourth straight months. The Conference Board's consumer confidence index fell to 93.3 during September, the lowest in 10 months, from a revised 94.5 in August. The index reading was the lowest since November. Consumers' view of present conditions slumped to the lowest in more than eight years.

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