US consumers increased their spending in August

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Consumer spending picked up in August, a sign that the US economic recovery is gaining momentum as autumn approaches.

Personal spending on goods and services rose 0.8% in August from the previous month, following a 0.1% drop in July, the Commerce Department reported on Friday.

Personal income rose 0.2% in August. The federal government’s distribution of improved tax breaks for parents helped boost income by 1.1% in July.

The highly contagious Delta variant of the coronavirus has triggered a summer slowdown in spending on outdoor meals, hotels and airline tickets. Nevertheless, consumers remain in a strong position to contribute to the economic recovery. They have accumulated high levels of savings and benefit from an abundance of business opportunities and rising wages.

“Households can afford to spend,” said Joe Brusuelas, chief economist at RSM US LLP. “Demand is expected to remain robust over the next two to three years as growth continues well above the long-term trend. “

Mr Brusuelas said that in the short term, bottlenecks could create problems. Constraints such as backups at US ports and overseas manufacturing disruptions persisted. The global chip shortage has ravaged the auto industry this year, slashing factory output of several million vehicles. The Federal Reserve and economists expect these disruptions to subside eventually.

Congestion at the Port of Los Angeles and other cargo ports is a drag on the economy.


Photo:

mike blake / Reuters

While many economists have lowered growth forecasts for the third quarter, they have raised forecasts for next year, indicating that some spending and production has just been delayed by Delta’s push, rather than lost and supply chain disruptions.

Consumer spending is the main source of economic growth in the United States and the main driver of the rapid recovery from last year’s pandemic-induced recession. The economy grew at an annual rate of 6.7% in the second quarter, up from 6.3% in the first quarter, revised figures from the Commerce Department showed Thursday.

Sales by retailers nationwide rose 0.7% in August, rebounding from a decline in July, the Commerce Department said in a separate spending report released in September. Retail sales include restaurant sales, but primarily cover products such as cell phones, televisions, groceries, and back-to-school items.

The ministry’s Friday report will offer more details on how spending on services – the bulk of overall spending – played out in August.

Data from private companies through September indicates that the slowdown in spending on many services is bottoming out as cases of Covid-19 decline. For example, during the week ended September 29, the number of diners seated in restaurants fell only 8% compared to the same period in 2019, a less severe drop than at the start of the month, according to data from the OpenTable booking site.

Analysts expect the holiday season to boost spending. Nearly 30% of U.S. consumers plan to spend more this holiday shopping season than last year, according to market research firm The NPD Group.

There were five times more internet searches related to December travel in August compared to a year earlier, according to digital analytics firm Similarweb.

Increased consumer appetite for holiday travel is helping boost business prospects for the Foot of the Mountain Motel in Boulder, Colo., Said Alex Gower, general manager of the motel.

Customers are booking stays for November and December earlier than usual, he said. Mr Gower suspects people are traveling to see their families on vacation, but are not necessarily looking to stay in the house with them.

Business at Foot of the Mountain has grown sharply this summer despite a slight increase in room cancellations related to the Delta variant, Gower said. He noted that the small motel offers people the option of secluding themselves in externally accessible rooms and using contactless check-in.

“People are looking for us because of these factors during this heightened contagion awareness,” Mr. Gower said.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com

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