The Good News Is Consumer Spending Is Up — But Only Because Gas Is So Pricy

We’ve said it once and we’ll say it again — the economy gets a big boost when we consumers are out spending our hard-earned money on stuff. So when we hear that spending is up, the first reaction is “Yay!” But this latest uptick in spending seems to be mainly because gas is so gosh darn expensive, not because we’re making any more money at work. Blurgh.

The Commerce Department announced a 0.5% growth in consumer spending in August from July, the biggest boost since February, reports The Associated Press. But while that was going on, gas prices were also rising by 50 cents per gallon during that time. If you take into account people digging deeper in wallets for fuel, spending was only up 0.1% last month.

Income grew a tiny bit, by 0.1% as well — which actually turns into a decrease of 0.3% when taking into consideration inflation and taxes. That’s the worst rate it’s been since last November.

When we have to pay more for gas and aren’t pulling in as much on the job, we can’t save as much, which is another downer to pile on top of all these other economic downers.

As the AP reports:

“The US personal income and spending data for August are worse than the headline figures suggest and indicate that subdued jobs growth is hitting incomes,” said [one economist]. The increase “was largely due to extra spending caused by the surge in gasoline prices.”

The more unemployed people there are without disposable income, the harder it is for the economy to grow. Again there’s that number — consumer spending is behind about 70% of economic activity. If you’re not earning money, you’re not spending money which means less demand for jobs which means more people aren’t working and aren’t spending money — it’s a vicious cycle and basically, we’re important.

There’s some good news on the horizon for September, including a few signs like increased consumer confidence and gains in home prices, which could help things pick up.

US consumer spending rose 0.5 percent, driven up by higher gas prices; income barely grew [Associated Press]