A shopper examines large-screen televisions on display in a Costco warehouse on Sept. 19, in Lone Tree, Col.David Zalubowski/The Associated Press
U.S. consumer spending increased moderately in August, suggesting the economy retained some of its solid momentum in the third quarter, while inflation pressures continued to abate.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2 per cent last month after an unrevised 0.5-per-cent gain in July, the Commerce Department’s Bureau of Economic Analysis reported on Friday. Economists polled by Reuters had forecast consumer spending climbing 0.3 per cent.
Consumer spending continues to be supported by still-solid wage gains even as the labour market has slowed considerably.
Annual revisions to national accounts data published on Thursday showed stronger wages and salaries growth in the second quarter than had been previously estimated. The saving rate also was higher than previously thought. Higher incomes and savings bode well for consumer spending for the rest of the year.
There had been worries that consumers were drawing down savings to fund spending. Labour-market jitters, with the unemployment rate rising above 4 per cent, had raised the spectre of precautionary saving, which would undermine spending.
The Federal Reserve last week cut its benchmark overnight interest rate by 50 basis points to the 4.75-per-cent to 5.00-per-cent range, the first reduction in borrowing costs since 2020, which Fed chair Jerome Powell said was meant to demonstrate policy makers’ commitment to sustaining a low unemployment rate.
Growth estimates for the third quarter are around a 2.9-per-cent annualized rate, with consumer spending seen matching the April-June quarter’s pace. The economy grew at a 3.0-per-cent pace in the second quarter.
The personal consumption expenditures (PCE) price index rose 0.1 per cent in August after an unrevised 0.2-per-cent gain in July. Economists had forecast PCE inflation advancing 0.1 per cent. In the 12 months through August, the PCE price index increased 2.2 per cent after rising 2.5 per cent in July.
Excluding the volatile food and energy components, the PCE price index increased 0.1 per cent after an unrevised 0.2-per-cent rise in July. In the 12 months through August, core inflation advanced 2.7 per cent after climbing 2.6 per cent in July. The U.S. central bank tracks the PCE price measures for its 2-per-cent inflation target.
Early on Friday, financial markets saw a roughly 50-per-cent chance of another half-percentage-point rate cut at the Fed’s Nov. 6-7 policy meeting, according to CME’s FedWatch tool. The odds of a 25-basis-point rate reduction were around 50 per cent.
The Fed raised its policy rate by 525 basis points in 2022 and 2023.