Gas Prices Cause Rise in Consumer Spending

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WASHINGTON (AP) — Americans increased their spending in August even though their incomes barely grew. Much of the spending increase went to pay higher gas prices, which may have forced consumers to cut back elsewhere.

The New York Times

The Commerce Department said Friday that consumer spending rose0.5 percent in August from July. It was the biggest jump since February.Gas prices rose nearly 50 cents a gallon in July and August, but have since leveled off. Excluding the impact of higher gas prices and other price gains, spending ticked up only 0.1 percent last month.Income grew only 0.1 percent, too. But after accounting for inflation and deducting taxes, income actually fell 0.3 percent — the poorest performance since November.The increase in prices and slower growth in pay forced people to save less.“The U.S. personal income and spending data for August are worse than the headline figures suggest and indicate that subdued jobs growth is hitting incomes,” said Paul Dales, senior United States economist with Capital Economics. The increase “was largely due to extra spending caused by the surge in gasoline prices.”“American household spending and income remain weak, indicating continued subpar growth,” said Sal Gautieri, senior economist at BMO Capital Markets.The combination of weak income growth and a big jump in spending meant that households saved less. The saving rate dropped to 3.7 percent of after-tax income in August, down from 4.1 percent in July.A price gauge tied to consumer spending jumped 0.4 percent, reflecting the rise in energy prices. It was the biggest one-month jump since March 2011. Excluding food and energy, prices barely changed. Over the last year, prices excluding food and energy rose only 1.6 percent, well below the Federal Reserve’s 2 percent inflation target.Consumers spent 0.9 percent more at retail businesses in August from July. The retail sales report showed Americans cut back on clothing, electronics and at general merchandise outlets.http://www.nytimes.com/2012/09/29/business/economy/consumer-spending-jumps-rising-with-gasoline-prices.html?_r=0

Europe's betrayal of Spain

By Ambrose Evans-Pritchard Economics Last updated: September 27th, 2012
We discover – yet again, you might say – that Germany, Holland, and Finland will not stand behind their solemn pledge of solidarity when push comes to shove.Spain’s premier Mariano Rajoy has been betrayed. Nobody should be entirely surprised if he and the Spanish arch-nationalists in his circle offer a condign riposte, and bring down the entire temple on the heads of the creditor powers.He bit the bullet and agreed to the highly intrusive terms of a €100bn eurozone rescue for the Spanish banking system on a specific understanding: that the ESM bail-out fund would ultimately take over the burden by recapitalising Spain’s banks directly.This deal has been breached. Can we believe anything that the Chancellor of Germany, the prime minister of Holland, and the prime minister of Finland say from now on? The EMU rescue edifice is built on sand.You might say Mr Rajoy had no choice. But he did. There were those whispering in his ear that Spain should instead retake control over its own monetary, exchange, and sovereign policy levers, and break out of its debt-deflation trap.Such a course might or might not be disastrous for Spain, depending on your analysis of EMU’s structural flaws, but it would certainly be disastrous for German and Dutch banks. (Given that it would cause the collapse of monetary union in the worst possible way).The Spanish bubble was after all a joint venture. Spain was flooded with cheap capital from Germany and Holland that it could not prevent or control under the EMU system. Did the German and Dutch regulators recognise the danger, or try to stop the excesses? Not really. They were complicit.The ECB’s uber-loose money (to help Germany when it was in slump) led to negative real interest rates for Spain – minus 2pc for years – that fuelled a massive credit boom. Policy was far too lax for a fast-growing Tiger economy.http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100020401/europes-betrayal-of-spain/