Flooring News and Information

Washington, DC, Oct. 1—Consumer spending rose slightly in August as tax rebate checks put more money in shoppers' pockets. For the second month in a row, spending increased by 0.2%, according to the Commerce Department.

Disposable incomes rose for the second straight month, reflecting the impact of tax rebate checks and lower tax rates, both of which were generated by President Bush's $1.35 trillion, ten year tax cut.

In August, disposable incomes increased 1.9%, the biggest advance since December 1993. In July, disposable incomes grew by 1.7%. Excluding the tax changes, disposable incomes went up by 0.3% in both July and August. Income and spending figures aren't adjusted for inflation.

Before the terrorists attacks on Sept. 11, analysts were hopeful that consumers would be spending more in coming months, continuing to keep the economy afloat. Now most economists believe the economy will fall into recession this year. In the wake of the attacks, consumer confidence has plunged, layoffs have spiked and billions of dollars in business have been lost.

Tax rebate checks boosted total disposable income at an annualized rate by $81.4 billion in July and $209.4 billion in August. Lower tax rates added another $13.7 billion to the annual rate in both July and August. The bulk of the checks arrived in mailboxes in August and September. The first wave were mailed out on July 20.

Meanwhile, Americans' personal incomes, which include wages, interest and government benefits, were unchanged in August, after rising by 0.5% in July, reflecting the weakened state of the nation's labor market, where unemployment shot up to 4.9% in August and payrolls fell. The flat reading marked the weakest showing in income growth since January 1994 when incomes actually fell by 3.9%.

With disposable income growth outpacing spending, the nation's personal savings rate—savings as a percentage of after tax income—rose to 4.1% in August from 2.5% in July. It was the biggest increase the savings rate has seen since January 1999 when it also rose by 4.1%.

Even with the rebates, consumers continued to be selective shoppers in August.

Spending on durables such as cars and washing machines, fell by 0.8%, on top of a 0.3% drop the previous month. Spending on nondurables, such as clothes and food, rose by 0.2% in August, after being flat in July. Spending on services increased by 0.4% for the second month in a row.