Hurricane takes toll on U.S. consumers

ECONOMY

WA SH I N G T O N • U. S. consumer spending barely rose in August likely as hurricane Harvey weighed on auto sales, while annual inflation increased at its slowest pace in nearly two years, pointing to a moderation in economic growth in the third quarter.

The weak report from the Commerce Department last week did little to change expectations that the Federal Reserve would raise interest rates in December. Fed Chair Janet Yellen said this week the U. S. central bank needed to continue gradual rate hikes despite uncertainty about the path of inflation.

“We think current economic conditions are heavily impacted by the effect of the recent hurricanes,” said Chris Rupkey, chief economist at MUFG in New York. “The Fed will rightly look over any soft patch for economic growth in the third quarter.”

Consumer spending, which accounts for more than two- thirds of U. S. economic activity, edged up 0.1 per cent last month also likely as unseasonably mild temperatures in some parts of the country reduced demand for utilities.

The gain, which followed a 0.3 per cent increase in July, was in line with economists’ expectations. The government said the data reflected the effects of Hurricane Harvey.

However, it could not separately quantify the total impact of Harvey on the data. The government made adjustments to estimates where source data were not yet available or did not fully reflect the effects of the storm.

Inflation remained muted in August, with the personal consumption expenditures ( PCE) price index excluding food and energy rising 0.1 per cent. The so- called core PCE has advanced by the same margin for four straight months.

As a result, the annual increase in the core PCE price index slowed to 1.3 per cent in August after advancing 1.4 per cent in July. That was the smallest year-on-year increase since November 2015. The core PCE is the Fed’s preferred inflation measure and has been undershooting its 2 per cent target since 2012.

The Fed signalled l ast week it anticipated one more interest rate increase by the end of the year. It has increased borrowing costs twice this year. Financial markets are pricing a roughly 76 per cent probability of an interest rate hike in December, according to the CME FedWatch tool.

T he do ll a r w as little changed against a basket of currencies, while prices for U. S. Treasuries fell. Stocks on Wall Street were trading higher.

“The Fed appears poised to look through surprises in inflation data over the next few months,” said Ellen Zentner, chief U. S. economist at Morgan Stanley in New York.

When adjusted for inflation, consumer spending slipped 0.1 per cent in August, the first drop since January.

The report was the latest suggestion t hat Har vey, together with hurricane Irma, would dent economic growth in the third quarter. The economy grew at a brisk 3.1 per cent annualized rate in the second quarter, with consumers doing the heavy lifting.