Washington, DC, Sept. 29--U.S. personal spending posted another healthy gain in August, the government said on Monday in a report boosting hopes the crucial household sector will be able to support the shaky economic recovery.
The Commerce Department said spending grew 0.8% in August after an upwardly revised 0.9% increase in July. Personal income, propelled by a large tax cut enacted by Congress in the spring, gained 0.2% in August.
The income and spending figures were close to Wall Street analysts' expectations for gains of 0.3% and 0.8%, respectively, and caused little reaction in financial markets.
A combination of lower tax withholding rates and the advance tax credit checks sent in July and August to families with children gave disposable personal income--personal income minus taxes and other bills--a shot in the arm. Disposable income grew 0.9% after a 1.5% jump in July. The July gain was the biggest monthly gain since January 2002, according to Commerce.
But consumers did not pour all of the extra money into spending, as the personal saving rate--savings as a percentage of disposable income--grew for a second straight month, to 3.8%, its highest level since February.
In late July and early August, the government mailed out 22.8 million tax credit checks worth a total of $13.7 billion.
The other major part of the tax package, a drop in the tax withholding rates for paychecks, went into full effect in July.
In its report on Monday, the government said the tax withholdings were cut at an annual rate of $45.8 billion in August and July.
With extra cash in their wallets, consumers should spend robustly in the second half of the year, according to economists. The economy grew at a 3.3% annual rate in the second quarter, but most Wall Street economists think it speed up sharply in the third quarter.
Elsewhere in Monday's report, the price index for personal spending rose 0.3%, its biggest gain since March. Excluding the volatile food and energy categories, though, the index was up a smaller 0.1%. The measure is closely watched by Federal Reserve officials as a reliable gauge of inflation trends.
