Consumer Spending, U.s. Economy | featured news

U.S. consumer spending rose in August as households stretched to pay for higher gasoline prices and factory activity in the Midwest contracted this month for the first time in three years, pointing to lackluster economic growth.

U.S. consumer spending got off to a fairly firm start in the third quarter, rising by the most in five months and offering hope economic growth would pick up this quarter. Other data on Thursday showed the number of Americans filing new claims for jobless benefits held steady last week.

The U.S. economy grew at a tepid 1.7 percent annual rate in the April-June quarter, suggesting growth will stay weak in the second half of the year. Slightly stronger consumer spending and greater exports were the main reasons the Commerce Department reported Wednesday that growth was better than its initial estimate of 1.5 percent. Still, growth has slowed from the 2 percent annual rate in the January-March quarter and the 4.1 percent rate in the fourth quarter of 2011.

As the Federal Reserve meets Tuesday and Wednesday to consider new stimulus for the weak economy, one of the key data it will be looking at is consumer spending, which is clearly waning.

The American economy grew slower than predicted in the first quarter, as government spending cuts offset a pickup in consumer spending.

The Federal Reserve said Tuesday that the U.S. economy has improved modestly as hiring and consumer spending have risen, and it's holding off on any new steps to boost the economy. Fed officials cautioned in their statement that unemployment remains high. And it noted that global economic growth has slowed — a reference to Europe's debt crisis. They left open the possibility of taking new steps next year if the economy worsens.

Americans earned less last month, the first decline in nearly two years. With less income, consumers could cut back on spending and weaken an already-fragile economy.

The economy grew slightly faster in the spring than previously estimated but remained dangerously weak in the face of high unemployment and higher gas prices. Many economists foresee slightly better growth in the current July-September quarter. The annual growth rate was 1.3 percent in the April-June quarter, up from an estimate of 1 percent made a month ago, the Commerce Department said Thursday. The improvement reflected modestly more consumer spending and a bigger boost from trade.