WASHINGTON -- Americans saw their incomes grow in August and spent all of it and more, which drove down the nation's savings rate to the lowest point on record. Despite the strong jump in consumer spending, analysts were still betting the Federal Reserve will leave interest rates unchanged next week.
Americans "obviously still subscribe to the philosophy `if you got it, spend it,'" said economist Joel Naroff of Naroff Economic Advisors.
Americans' incomes, which includes wages, interest and government benefits, grew by a solid 0.4 percent in August on top of a 0.3 percent gain in July, the Commerce Department said.
But spending rose faster. For the second straight month, Americans went on a buying binge, increasing their spending by a brisk 0.6 percent in both July and August.
"People are remarkably confident," said Paul Kasriel, chief economist for the Northern Trust Co. He said Americans are in the mood to spend because jobs are plentiful, incomes are rising and inflation is low.
Consumer spending, which accounts for two-thirds of all economic activity, has been an engine of the economy's remarkable growth.
"The demise of the consumer, which has been forecast all this year, has yet to show up in these numbers," observed Michael Niemira, economist with Bank of Tokyo-Mitsubishi.
Analysts say the economy, which grew by a solid 5.6 percent annual rate in the second quarter, slowed to a rate of around 3 percent to 3.5 percent in the July-September quarter.
With Friday's figures, analysts say they believe consumer spending will be stronger in the third quarter, increasing at a rate of 4 percent or more, compared with the second quarter's 3.1 percent pace, the slowest in three years.
But that expected pickup in consumer spending was likely blunted by other forces, thus leading to a moderation in third-quarter economic growth, economists said.
Given that scenario, the Federal Reserve, which has raised interest rates six times since June 1999 to slow growth to a more sustainable pace, is expected to stand pat when its meets Tuesday.
Although analysts say they believe the Fed is finished raising interest rates for this year, many don't believe the central bank is ready to declare victory in its anti-inflation campaign.
"Ultimately, for the Fed to conclude that it has tightened enough, consumer spending growth must simmer down," said economist Ken Mayland of ClearView Economics. "We are not there yet."
All that spending in August drove down the personal savings rate -- savings as a percentage of after-tax income -- to a negative 0.4 percent, an all-time monthly low since record keeping began in 1959.