US Consumer Spending Spurred By Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

02 September 2003

President Bush's $350 billion tax cut package signed into law last May would appear to be having the desired effect on consumer spending, according to the latest figures released by the Department of Commerce last week.

Consumer spending rose by 0.8% in July compared to June, the largest boost in spending since March, and higher than the 0.6% figure recorded in June, though the statistics are broadly in line with most economists' expectations.

Much of this increased spending is attributable to a sharp increase in Americans' disposable income which rose 1.5% in July, the largest increase since January 2002 and significantly higher than the more modest 0.4% increase in June. Naturally, the Bush administration is keen to claim the credit for this with this year's round of tax cuts.

Consumer spending is responsible for around two-thirds of economic activity in the United States, underlining the importance the government attaches to these figures. In July, Americans seemed to be attracted to expensive 'durable' goods such as cars and domestic appliances and spending on these products increased 2.1%. Spending on non-durable goods meanwhile (such as food and clothing) increased 0.8% in July.

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