More Spending, Bigger Paychecks Shine Hope on Economic Recovery

Consumer spending in August rose 0.4%, aligning with bigger paychecks and rebounding from a decline last month even as inflation stays high.

Excluding food and energy, the personal consumption expenditures (PCE) price index increased 0.6% in August. Food prices went up 0.8%, partially offset by a 5.5% decline in energy prices, according to the August personal income and spending report from the Commerce Department on Friday (Sept. 30).

Although spending, the backbone of the U.S. economy and accounting for about two-thirds of U.S. economic output, is still below the growth rate from earlier this year, personal income went up 0.3% in August for a $71.6 billion boost and disposable personal income (DPI) increased 0.4%, up $67.6 billion.

See also: Gas Down, Consumer Confidence Up, as People Shop, Plan Vacations

Prices for services increased 0.6%, while prices for goods dropped 0.3%. Spending on housing, healthcare, transportation, and utilities added up to the biggest areas of increased expenditures, while consumers spent less on gas and other energy goods in August.

Consumer prices increased by 6.2% in August compared to the same month last year. Prices for goods increased 8.6% and prices for services went up 5.0%. Food prices increased by 12.4% and energy prices by 24.7% percent.

The personal saving rate remained the same in August — 3.5% — up from 3% in June.

Read more: 9 in 10 Consumers Feel the Impact of Grocery Inflation

Wall Street Journal economists had estimated that consumer spending would be 0.3% in August, up 0.1% from July, with personal income up 0.3%.

“The labor market is helping but inflation is taking it away,” Citi Global Wealth economist Steven Wieting told The Wall Street Journal, referring to consumers’ spending power. Falling imports and rising retail inventories “are telling us the consumption pace is going to weaken further,” he added.