Both personal income and consumer spending fell dramatically in August. They’re trying to pin this on Katrina, but as I recall the hurricane struck on August 29th. What, were we doing just fine during the prior 28 days of August?
Personal incomes fell by 0.1 percent last month, to $10.29 trillion, according to the Commerce Department, partly reflecting $100 billion in uninsured losses to residential and business property from the first hurricane, which pounded the Gulf Coast at the end of August. Incomes rose by 0.3 percent in July and last showed a decrease in January, when they fell 2.6 percent. Analysts had expected incomes to rise by 0.3 percent.
Spending slipped 0.5 percent, to $9.13 trillion, its biggest monthly drop in more than three years and after it rose by 1.2 percent. Economists expected spending to fall by 0.2 percent. When adjusted for inflation, real spending fell by 1 percent.
Both the increase in July and the dropoff in August spending were driven by car and truck sales.
The income and consumption data will likely fall further when the numbers are known for September, when gasoline prices briefly soared past $3 and Hurricane Rita disrupted recovery efforts in the Gulf Coast, economists have said. It is already becoming clear that higher energy costs – first in the form of gasoline, and this winter in the form of heating bills – are starting to wear down the resilient American consumer.