Consumer spending jumps, inflation remains tame

Aided by the cash for clunkers program, consumer spending shot up 1.3% in August, which compares favorably to the Bloomberg estimate of 1.1%. Personal income was much more subdued, increasing 0.2%, which brought the savings rate down from 4.0% to 3.0%.

Gains were not just limited to automobiles as nondurable goods and services also registered modest increases.

However, the jump in spending, which is welcome as the economy begins to emerge from the worst recession since the 1930s, did depress the savings rate.

September is likely to show a drop in spending as the one-time shot in the arm from the cash for clunkers program disappears, but hopeful signs in other categories suggests that consumers are becoming a little less concerned about the economy.

Moreover, the core PCE Price Index, which is a broad look at inflation and is favored by the Fed, increased just 0.1% for the fourth-straight month, giving policymakers plenty of room to keep interest rates low and encourage economic activity.