The Economy: Consumers Are Spending Big Time; Tax Cuts Provide Impetus, But Some Economists Warn Jump May Not Continue
Americans appear to be plowing a large chunk of their tax cuts back into the economy.</br></br>The Commerce Department reported that consumer spending rose by a robust 0.8% in August from July, following a 0.9% increase the month before. The latest figures pointed to a remarkably strong 7.4% annualized gain in inflation-adjusted consumer spending through the first two months of the third quarter, according to Bear Stearns estimates. If that spending pace was sustained through September -- final data won't be available until next month -- it would be the largest quarterly spending increase since 1985.</br></br>"Massive tax relief has boosted disposable income and real consumer spending," Steven Wood, an economist with Insight Economics, said in a note to clients. "This fiscal stimulus will provide a strong boost to third-quarter" growth.</br></br>It is still too early to say whether the latest spurt of spending will be sustainable. Consumer-confidence surveys remain soft, in part because companies haven't started hiring en masse, and that is restraining wages and salaries. Some economists warn that the recent jump in spending will wane as the initial impetus of tax cuts wears off. However the latest reports suggest the tax cuts at least helped set the tone for a summer of sizzling consumer spending.</br></br>"People are slowly starting to get more and more confident," says Myron Markewycz, general manager of One Sixtyblue, a fine-dining restaurant in Chicago that has seen sales of $32 Delmonico steaks and $100 bottles of wine pick up sharply in the past two months.