'Clunkers' plan drives US consumer spending
WASHINGTON: US consumer spending rose in July, boosted by the government's popular "Cash-for-Clunkers" auto sales incentive program, official figures showed Friday.
The Commerce Department said consumer spending which drives two-thirds of US economic activity rose for the third month in a row in July, by 0.2 percent, in line with the average analyst forecast.
Excluding price changes, so-called "real" personal spending increased 0.2 percent in July, double the gain in June, but still at weak levels.
"If this recovery is to succeed, we need households to open those wallets and what we saw in July was just people blowing the dust off the leather," said Joel Naroff of Naroff Economic Advisors.
Real spending on durable goods jumped 1.8 percent, following a 0.8 percent rise in June.
"Purchases of motor vehicles and parts more than accounted for the increase in July and accounted for most of the increase in June," the department said, noting the impact of the federal auto rebate program that was launched on July 27.
"The increase in consumer spending is almost completely based off of the jump in motor vehicle sales due to the Cash-for-Clunkers stimulus package," Briefing.com analysts said.
Excluding the 12.5 percent leap in new vehicle sales, spending would have had zero growth, they said.
Consumers snapped up rebates for up to 4,500 dollars to trade in their gas-guzzling vehicles for new more fuel-efficient models under the Car Allowance Rebate System (CARS), the official name of the program.
The strong demand burned through the program's one-billion-dollar funding in the first week, leading Congress to pump in an additional two billion dollars.
The government ended the program this week, less than a month after it started, as applications threatened to outstrip funding. Total applications were worth 2.877 billion dollars.
"When given sufficient incentive as in Cash-for-Clunkers consumers will spend. But reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers," said Nigel Gault, chief US economist at IHS Global Insight.
The Commerce Department said June spending rose a revised 0.6 percent in June, adding 0.2 percentage point.
The report showed personal income was flat, up less than 0.10 percent, while disposable personal income -- income less personal taxes -- slipped less than 0.1 percent.
As Americans struggled with the worst recession since the Great Depression, the savings rate as a percentage of disposable income fell to 4.2 percent from 4.5 percent after hitting its highest level since 1995 in May.
A weak reading on consumer confidence, which can signal the direction of consumer spending, showed sentiment fell in August but not as much as analysts expected.
The University of Michigan's consumer sentiment index fell to 65.7 in August, from 66.0 in July, according to final estimates. Most analysts had forecast a 64.0 reading.
Robert Brusca of FAO Economics warned that consumer attitude data are often unreliable in pinpointing change in the business cycle.
"We are content with some waffling and mild increases and expect the large improvements in attitudes to come after other major signs of growth have come," he said.