U.S. Consumer Spending Climbs on "Cash for Clunkers"

Washington DC Aug. 28, 2009; Shobhana Chandra writing for Bloomberg reported that consumer spending in the U.S. rose in July as households took advantage of the government’s “cash for clunkers” program to buy new cars.

The 0.2 percent gain in purchases was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Incomes were unchanged, causing the savings rate to decrease.

Spending is projected to rise this quarter as auto dealers benefit from the administration’s incentive plan, while retailers such as Kohl’s Corp. and J.C. Penney Co. struggle to lure households shaken by mounting job losses. A record loss of wealth may prompt Americans to reduce debt and boost savings, signaling consumers will play a smaller role in the rebound.

“Consumer activity is being stymied by the lack of income,” said Guy LeBas, chief economist and fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “We can’t have a sustained recovery without growth in consumer spending.”

Confidence among U.S. consumers was higher than forecast in August, the Reuters/University of Michigan final index of sentiment showed today, as reports indicated industries such as housing and manufacturing were stabilizing. The gauge dipped to 65.7 from 66 in July.

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