Rent-to-own News - Consumer spending beats expectations

Consumer spending in the U.S. rose more than expected in August, bolstering the Federal Reserve’s forecast that the U.S. economy will continue expanding at a “modest” pace.

Purchases rose 0.4 percent for a second month, Commerce Department figures showed today in Washington. The gain exceeded the 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News, Businessweek reports. Incomes were up 0.5 percent, the biggest advance this year, propelled by the resumption of extended and emergency unemployment benefits as wage gains cooled.

The pickup in spending, the biggest part of the economy, bodes well for retailers heading into the holiday-shopping season. Nonetheless, a jobless rate that is projected to average at least 9 percent through next year may prevent demand from growing much more, one reason why Fed policy makers like William Dudley say they remain concerned about the speed of the recovery.

Stock-index futures extended earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.6 percent to 1,143.9 at 8:57 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.54 percent from 2.51 percent late yesterday.

Survey Results
The median estimate was based on a survey of 79 economists. Projections ranged from increases of 0.2 percent to 0.5 percent.
Economists forecast incomes would also rise 0.3 percent, following a 0.2 percent gain, according to the Bloomberg survey.
Wages and salaries increased 0.3 percent after a 0.4 percent increase the prior month, showing how the weak labor market is holding back paychecks. Transfer payments, which include government unemployment insurance outlays, jumped 1.6 percent. Congress passed legislation in late July extending emergency benefits.

Disposable incomes, or the money left over after taxes, rose 0.2 percent after adjusting for inflation. They dropped 0.2 percent in July.

The savings rate increased to 5.8 percent from 5.7 percent the prior month.

Inflation Stabilizes
Today’s report also showed inflation has stabilized under the Fed’s long-term projection. The gauge tied to spending patterns increased 1.5 percent from August 2009, the same as in the 12 months ended in July.

The Fed’s preferred price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 1.4 percent from a year earlier, matching the 12-month increase in June and July. The central bank’s long-term projection calls for an increase in the 1.7 percent to 2 percent range.

Fed policy makers on Sept. 21 moved closer to a second wave of unconventional monetary easing and said for the first time that too-low inflation, in addition to sluggish growth, would warrant taking action.