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Last Updated: Thursday, 1 September 2005, 20:56 GMT 21:56 UK
US shoppers spend as savings fall
Car dealership in Los Angeles
Heavy discounts have driven US consumer demand for cars
US consumer spending rose by 1% in July - pushing America's personal savings rate to the lowest level on record.

Strong sales of cars, driven by cut-price offers from manufacturers, helped keep consumer spending higher, the US Commerce Department reported.

But consumers spent 0.6% more than they earned, pushing the savings rate to its lowest since records began in 1959.

And despite the spending boom, US factory bosses reported a slowdown in output during August.

The Institute for Supply Management said its closely-watched manufacturing index slipped to 53.6 from 56.6 in July.

Hurricane worries

Although a reading above 50 indicates that manufacturing is expanding, August's slowdown was worse than many economists had expected.

What America has succeeded in creating is not an economy impervious to shocks, but merely one which enables their consequences to be postponed to a later date
Peter Schiff, Euro Pacific Capital.

The destruction caused by Hurricane Katrina, which severely disrupted oil production in the Gulf of Mexico before sweeping ashore killing hundreds of people, could further dent US factory output, analysts warned.

July's rise in consumer spending followed strong gains in June, the Commerce Department reported.

However, it said US incomes rose by 0.3% in July, down from 0.5% in the previous month.

With energy prices continuing to rise - US light crude hit a record $70.85 a barrel on Tuesday - and signs of a softening in the US house market, analysts warned that the lack of personal savings could hit consumers if the economy was to take a turn for the worse.

"What America has succeeded in creating is not an economy impervious to shocks, but merely one which enables their consequences to be postponed to a later date," said Peter Schiff, president of Euro Pacific Capital.

Despite the fears, Ford Motor said it had benefited from strong demand in US showrooms for its cars.

The world's third-largest carmaker said US sales rose by 3% in August as consumers took advantage of cheaper deals.

However, bigger rival General Motors said its sales dropped by 16% in August.

Executive director Paul Bellow said the effect of Hurricane Katrina on dealerships in the south of the country had caused vehicle sales to drop by up to 500,000 industry-wide.




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