US consumers keep on spending
Purchases rise 0.4% in September, boosting consumption in the quarter
Americans kept on spending in September as income gains cooled, pushing down the savings rate to the lowest in 2018. Inflation matched the Federal Reserve’s target, reinforcing the central bank’s outlook for gradual interest rate hikes. Purchases, which account for about 70% of the economy, rose 0.4% from the prior month.
Americans kept on spending in September as income gains cooled, pushing down the savings rate to the lowest in 2018.
Inflation matched the Federal Reserve’s target, reinforcing the central bank’s outlook for gradual interest rate hikes.
Purchases, which account for about 70% of the economy, rose 0.4% from the prior month, matching economists’ estimates, following an upwardly revised 0.5% increase, commerce department figures showed on Monday. Incomes advanced a less-than-projected 0.2%, the weakest in more than a year, while Americans saved 6.2% of their disposable income, matching the lowest level since 2013.
The figures show spending in September helped lift consumption during the quarter to what GDP data on Friday showed was the fastest increase since 2014.
September’s rise reflected gains in durable goods, particularly motor vehicles and parts. At the same time, the slowerthan-expected income growth suggests that any meaningful, sustained pay gains remain elusive, though Hurricane Florence may have had an impact on September’s figures.
Risks to the outlook include President Donald Trump’s global trade war, which is boosting prices and making some companies hesitant to invest, as well as a stock market swoon and a fading of the effects from fiscal stimulus. At the same time, consumer optimism remains elevated amid a tight labour market and lower taxes, supporting spending in the final quarter.
The report “bodes well for the American consumer remaining strong through the end of the year”, said Stephen Stanley, chief economist at Amherst Pierpont Securities.
The Fed’s preferred inflation gauge tied to consumption rose 0.1% from the previous month, matching projections, and was up 2% from a year earlier. Excluding food and energy, so-called core prices grew 0.2%, slightly above the median estimate for a 0.1% rise, and were also up 2% on an annual basis.
“The Fed has to be pretty happy with the fact that we’ve finally gotten the 2% on core and we seem to be staying there, not falling back or accelerating,” Stanley said.
“That argues for them getting back to neutral. They don’t have to rush to get there and they don’t need to speed up from the pace we’ve seen so far.”
While inflation has mostly remained below the central bank’s 2% target since 2012, it has made progress in the past few months. The Fed is expected to raise rates for a fourth time this year in December.
The tax cut legislation signed in 2017 is generally providing workers with more take-home pay, and wages have been picking up as the unemployment rate fell to the lowest since 1969. Still, the gains have been gradual and inflation has eaten into the increases.
Wages and salaries rose 0.2% in September from the prior month.