A sharp drop in savings over the past two months is a potentially negative sign for growth in the months ahead. Consumers cannot keep spending faster than their incomes grow, especially since their savings rate is already on the low side.
“The problem with this type of behavior is that it is unsustainable,” economist Eugenio Aleman of Wells Fargo said.
Spending rose by 0.5% in August — the fastest rate since February — and marked the second straight sharp gain, according to Commerce Department data released Friday. Spending is watched closely because it accounts for more than two-thirds of U.S. economic growth.
Yet not all spending is of equal benefit to the economy. Other reports on consumption in August suggest a big portion of consumer outlays went to pay for higher gasoline costs. Gas stations reported the biggest rise in sales last month in nearly three years.
That’s generally not viewed as positive since it means people are spending less on other goods and services whose demand is more closely tied to new hiring and job creation. Retail sales for items such as clothing and electronics, for example, softened in August.
What’s more, the rise in spending isn’t being supported by faster wage growth. Personal income inched up 0.1% last month on a seasonally adjusted basis. And July’s increase in wages was marked down to 0.1% from 0.3%.
Read more: Market Watch