US consumer spending up a modest 0.6%
WASHINGTON — American consumers slowed their spending to a gain of just 0.6% in September, a cautionary sign for an economy that remains in the grip of a pandemic and a prolonged bout of high inflation.
At the same time, a key inflation barometer that’s closely followed by the Federal Reserve surged 4.4%, last month, from a year earlier — the fastest such increase in three decades. And wages, a key component of inflation, jumped 0.8% — twice the August gain and a reflection of the growing ability of workers to compel higher pay from companies that are desperate to fill a near-record number of available jobs. A separate report, Friday, showed that wages jumped 1.5% in the three months that ended in September, the most on records dating back 20 years.
Sharply rising prices, in part a result of supply shortages, have imposed a growing burden on American households. For months, annual inflation has remained far above the modest annual rates of 2% or less that prevailed before the pandemic recession.
Overall, Friday’s report from the Commerce Department showed that personal incomes, which provide the fuel for spending, fell 1%, in September, the sharpest decline in four months. That occurred because the sizable gain in wages was more than offset by the category of income that includes government benefits: It plunged 7%, reflecting the expiration of emergency federal programs, including expanded unemployment benefits.
The economy, while growing, is still being hampered by COVID-19 cases and persistent supply shortages. On Thursday, the government estimated that the economy slowed sharply to a 2% annual growth rate in the July-September period, the weakest quarterly expansion since the recovery from the pandemic recession began last year.
For the July-September quarter as a whole, consumer spending, which fuels about 70% of overall economic activity, weakened to an annual growth rate of just 1.6%. That was down significantly from the previous quarter.
Economists remain hopeful for a bounce-back in the current quarter, with confirmed COVID cases declining, vaccination rates rising, businesses investing and more Americans venturing out to spend money. Many analysts think the economy will rebound at a solid annual growth rate of at least 4% this quarter.
Workers have gained the upper hand in the job market for the first time in at least two decades, and they are commanding higher pay, better benefits and other perks like flexible work hours. With more jobs available than there are unemployed people, government data shows, businesses have been forced to work harder to attract employees.
Higher inflation is eating away at some of the wage increases, but in recent months overall pay has kept up with rising prices. The 1.5% increase in wages and salaries in the third quarter stayed ahead of the 1.2% increase in inflation during that period, economists said.
In Friday’s report on consumer spending, the government said that last month’s 0.6% increase marked a slowdown from the 1% gain in August. Purchases of goods slowed to a 0.5% rise in September, compared with a 1.6% increase in August.