The Economy

Consumer Spending Rises 0.5% in September

The September gain follows a 0.1% decline in August, while an inflation metric shows its biggest year-on-year increase in two years.
Matthew HellerNovember 1, 2016
Consumer Spending Rises 0.5% in September

U.S. consumer spending beat expectations in September, showing the biggest increase in three months as Americans bought more new cars and other long-lasting goods.

The Commerce Department said personal consumption rose a seasonally adjusted 0.5% last month, topping economists’ estimates of a 0.4% gain, after dipping 0.1% in August. Incomes rose 0.3%, below forecasts of a 0.4% increase.

Spending on automobiles increased as manufacturers such as General Motors and Ford offered some of the biggest discounts of the year to lure buyers. Americans also spent more on gasoline, rent, eating out and health care.

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But for the third quarter as a whole, personal-consumption expenditures rose at a 2.1% pace, down from 4.3% during the prior period, according to separate data released last week.

“Uncertainty generated by the looming U.S. presidential election could be one factor weighing on consumer confidence,” The Wall Street Journal said. “The labor market also has slowed, though it continues to generate jobs at a fair pace.”

Inflation pressures, meanwhile, appear to be building. According to the Commerce Department, the personal consumption expenditures (PCE) price index rose 1.2% in the 12 months through September, the biggest gain since November 2014, after advancing 1.0% in August.

The core PCE index, which excludes food and energy, rose 1.7% year-on-year, within reach of the Federal Reserve’s target of 2.0%.

“The latest data should be of comfort to the Fed,” Greg Daco, head of U.S. macroeconomics at Oxford Economics in New York, told Reuters. “Spending continues to underpin growth and, combined with positive developments on the labor market and inflation, should enable the Fed to tighten policy in December.”

Household spending is the biggest driver of the economy, contributing more than two-thirds of U.S. growth. It has averaged a modest 2.3% increase each quarter during the current recovery now going on its eighth year.

“The slowdown in spending suggests the economy could expand at a slower pace in the coming year, especially if the Fed raises the cost of borrowing,” MarketWatch said.

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