Consumer spending jumps 1.3 percent in August

WASHINGTON (AP) — Consumer spending, propelled by the wildly popular Cash for Clunkers auto sales program, shot up in August by the largest amount in nearly eight years even though personal incomes continued to lag.

The Commerce Department said Thursday that consumer spending rose 1.3 percent in August, even better than the 1.1 percent gain that had been expected. Incomes, the fuel for future spending gains, continued to lag, edging up 0.2 percent in August, the same as the July increase.

The big jump in consumer spending, which accounts for 70 percent of total economic activity, is a good indication that the economy was returning to positive growth this summer. But economists are worried that any rebound from the recession could falter if income growth does not improve.

The government had reported Wednesday that the overall economy, as measured by the gross domestic product, was shrinking at an annual rate of 0.7 percent in the April-June quarter, the fourth straight quarterly decline as the nation continued to be battered by the longest recession since the 1930s.

The strong increase in spending in August, which followed a 0.3 percent rise in July, sets the stage for a return to positive growth in the third quarter. Many economists believe the GDP grew at an annual rate as high as 3 percent to 3.5 percent in the summer and should maintain growth at that level in the final three months of this year.