Consumer spending rises 0.2%; savings up

WASHINGTON — American consumers modestly stepped up their spending in September, but their incomes grew fast enough to let them save more, too.

In a separate report, weekly applications for unemployment benefits rose more than projected, offering a note of caution on the economy as Federal Reserve policymakers signal a pause from interest-rate cuts.

The Commerce Department said Thursday that consumer spending rose

0.2% in September, matching August’s increase but coming in slightly below economists’ expectations.

Incomes grew 0.3%, lifting the U.S. savings rate to 8.3% in September, highest since March.

Consumer spending accounts for about 70% of U.S. economic activity. The government reported Wednesday that consumer spending rose at a solid annual pace of 2.9% for the July-September quarter, a bright spot in a quarter when the overall economy grew just 1.9%.

The rising saving rate is encouraging because it suggests consumers have financial leeway to keep spending and supporting an economic expansion that has already entered a record-breaking 11th year. The savings rate had dropped to 3.2% in 2005 before the recession.

The report also showed income gains matched projections, while the Fed’s preferred inflation gauge matched the slowest pace since 2016.

On Wednesday, the Fed, reassured by modest inflation but worried that President Donald Trump’s tariff war with China will hobble economic growth, cut short-term interest rates for the third time this year.

Other reports Thursday signaled more weakness to come. The Bloomberg Consumer Comfort Index posted the worst weekly decline in more than eight years, while a gauge of business activity in the Chicago region fell to the second-lowest level since 2009, indicating a deepening contraction.

Fed Chairman Jerome Powell highlighted a strong job market, rising incomes and solid consumer confidence in his news conference Wednesday and he suggested the Fed would pause rate cuts. “The consumer is really driving growth” and hasn’t shown signs of being dragged down by weakness in manufacturing, exports or business investment, he said.

Powell also cited low levels for initial unemployment claims as another positive sign, and they remain relatively low even with the latest increase. The Labor Department’s latest report Thursday showed that such filings rose 5,000 to 218,000 in the week that ended Saturday, compared with projections for 215,000. The fourweek average, a less-volatile measure, declined to 214,750.

Elsewhere in Thursday’s data, the personal consumption expenditures price gauge, which the Fed officially targets for 2% inflation, was little changed in September from the previous month and up 1.3% from a year earlier.

The core personal consumption expenditures price index, which excludes food and energy, was also little changed from August, slightly below projections, and up 1.7% from a year earlier. It increased at a 1.6% annualized rate over the three months through September compared with 2.5% in the three months through August. Policymakers view the core gauge as a better indicator of underlying price trends.