Consumers spent more as they made more money in August. Meanwhile pending home sales took a surprise dive. Amid uneven data like this, economists are trimming GDP forecasts.Jeanne Yurman reports.
Data rolling out on Monday showed a pick up in both U.S. incomes and spending last month. The Commerce Department reported a slightly stronger-than-expected half a percent gain in consumer spending. And amid concerns about the relatively flat growth in American paychecks, incomes rose a third of a percent. It is a welcome report says Standard & Poor's Beth Ann Bovino. SOUNDBITE: BETH ANN BOVINO, U.S. CHIEF ECONOMIST (ENGLISH) SAYING: "The good news is we are getting out there and opening up our checkbooks. There was a lull during a bit of the summer and there was a bit of concern that consumers were pulling back, continuing to kind of build up their balance sheets and not spend, save more, spend less, which is good for their balance sheets but not very good for the economy in terms of growth." But not all economists are as upbeat on the data. Steve Ricchiuto at Mizuho Securities says these numbers are nice but to support current GDP forecasts they need to be stronger. SOUNDBITE: STEVE RICHHIUTO, CHIEF ECONOMIST, MIZUHO SECURITIES (English) SAYING: "We really need to get those wage and salary gain numbers up to .8 percent for several mos in a row to begin to become consistent around what everyone thinks growth should be around three percent. Instead its coming in at numbers around .4 percent which is much more consistent with an economy running around its trend of around 2%." A report by National Association of Business Economics echoes Ricchiuto's cautious tone After GDP grew at a torrid 4.6% pace in the second quarter, its forecasters have trimmed their outlook for real GDP growth for the third and fourth quarters. Ricchiuto says one of the big issues preventing stronger economic growth is that with little inflation, companies don't have a lot of pricing power. So they resort to cost cutting - often job cuts - to boost profits. But that cuts into demand or consumer spending. Meanwhile, pending home sales posted a surprise drop of one percent last month underscoring a still shaky housing market. Last month existing home sales surged to their highest level in more than six years but economists say still sluggish wage growth and relatively high unemployment is sidelining first-time buyers. That and the expected increase in interest rates next year, could weigh on the wobbly recovery in the housing market. Currently the Central Bank continues to weigh the data to determine when and how big a move to make. It is predicting the U.S. economy will grow as much as 2.2 percent this year and up to three percent next year.