Real spending rose 0.6% while real disposable income was flat, leaving a saving rate of 4.1%. Second-quarter growth was revised up to 2.2%, while the Atlanta Fed's tracker cut its third-quarter estimate to 3.7% from 5.0%.
American households kept spending in August. Their incomes, adjusted for prices, stood still.
Personal consumption expenditures rose 0.9%, or $190.8 billion, the government said Wednesday. After inflation, spending rose 0.6%. Personal income grew 0.2%, or $66.6 billion, and income after taxes rose 0.3%. Adjusted for inflation, disposable income was unchanged.
That is a 0.6-point gap in a single month between real spending growth and real income growth. With spending rising three times as fast as after-tax income in percentage terms, the difference came out of saving. The personal saving rate was 4.1% in August.
A better second quarter
The same morning's third estimate of second-quarter output, which included the government's annual revisions, raised growth to an annualized 2.2% from 1.5%. Investment, consumer spending and government accounted for most of the upgrade. First-quarter growth was revised to 2.5% from 2.1%.
Private demand was stronger still. Real final sales to private domestic purchasers, a measure that leaves out trade, inventories and government, grew at a 4.6% pace in the second quarter. Gross domestic income, which tallies the economy through earnings rather than output, rose 2.6%, and the average of the two measures was 2.4%. Corporate profits from current production increased $384.0 billion in the quarter, $16.9 billion less than previously estimated.
A softer third quarter
The Atlanta Fed's GDPNow model, which updates its estimate of current-quarter growth as data arrive, moved in the other direction. After Wednesday's reports it lowered its third-quarter figure to 3.7% from 5.0%. Its estimate of real consumer spending growth fell to 3.5% from 4.2%, and the subtraction from net exports widened to 2.60 percentage points from 1.37 after a report showed a larger goods trade deficit.
The result is a stronger past and a slower present. The second quarter now looks better than first reported. The third quarter still tracks as solid, just less so than a day earlier.
Jobs and sentiment
Private payrolls offered support. Payroll processor ADP said employers added 90,000 jobs in September, above the 68,000 expected, after a revised 36,000 in August. Pay for workers who changed jobs rose 4.8% from a year earlier, against 3.0% for those who stayed.
The spending data arrive a day after the Conference Board's consumer confidence index dropped 6.7 points to 81.9. The two are not a matched pair. August spending happened before the Sept. 1 to Sept. 23 survey window, so they do not show consumers reacting to the same conditions.
Two readings
One reading is that households are spending through higher prices and gloomier moods because they still have jobs, and that the confidence slump reflects sentiment more than behavior. A 4.6% pace of private domestic demand in the second quarter supports that view.
The other reading is that spending that outruns real income depends on drawing down savings or adding credit, and that the tracker's cut to consumption growth, on the same day as the report, hints August may be a high-water mark rather than a trend.
What to watch
Friday's jobs report will show whether hiring is strong enough to keep supporting spending. The GDPNow estimate updates again Thursday. September income and spending figures arrive Oct. 29, and they will show whether the saving rate keeps falling.