US Consumer Spending Higher Than Predicted in August

Consumer spending in the US has risen more than what was being expected in August, as wages go up, vindicating the Federal Reserve's prediction that the largest economy in the world will continue to grow at a "modest" rate.

Spending rose 0.4% for the second consecutive month, figures provided by Commerce Department show today. This rise was higher than the 0.3% increase forecasted by economists polled by Bloomberg News. Wages went up 0.5%, which was the biggest rise this year, driven by the continuation of emergency and extended unemployment benefits as income gains cooled.

The boost in spending, the largest component of the US economy, is likely to continue as the holiday-shopping season draws closer. Nevertheless, an unemployment rate that is expected to be at least 9% through the coming year is likely to prevent demand from rising very much.

“Consumers are doing OK, they are not retrenching, but neither are they splurging", says Sal Guatieri, an economist at Toronto-based BMO Capital Markets Inc. “This sets us up for a better holiday-shopping season than the past few years. The recovery is on track, but remains lackluster".

Statistics also show that the rate of savings increased from 5.7% in the previous month to 5.8%, whereas inflation seems to have stabilized.

The economic outlook is one of the leading issues for US voters in the upcoming congressional elections and surveys indicate that people are highly skeptical of President Obama's performance.