U.S. consumer spending rises; core inflation firms slightly

The Commerce Department said consumer spending increased 0.4 per cent after an upwardly revised 0.4 per cent rise in July.
The Commerce Department said consumer spending increased 0.4 per cent after an upwardly revised 0.4 per cent rise in July.PHOTO: BLOOMBERG

WASHINGTON (REUTERS) - U.S. consumer spending grew briskly in August and a key measure of inflation firmed a bit, signs of strength in America's domestic economy that could lead the Federal Reserve to tighten interest rates despite weakness abroad.

The Commerce Department said on Monday consumer spending increased 0.4 per cent after an upwardly revised 0.4 per cent rise in July.

The data suggests the strong consumer spending that bolstered the economy in the second quarter carried over into the third.

Fed Chair Janet Yellen on Thursday said the economy was strong enough to warrant a rate increase this year, though investors have been doubtful, with many betting that the Fed's first hike in a decade will come in March.

The U.S. dollar firmed following the consumer spending report, as did yields on U.S. government debt, signs that some investors were bringing forward their bets on a rate increase.

Economists polled by Reuters had forecast consumer spending rising 0.3 per cent last month after a previously reported 0.3 per cent rise in July. Consumer spending accounts for more than two-thirds of U.S. economic activity.

It was the latest report indicating momentum in the economy as it confronted recent global financial markets turbulence, sparked by concerns over a slowing Chinese economy, which pushed the Fed to hold off hiking rates earlier in September.

The economy grew at a robust 3.9 percent annual rate in the second quarter.

Last month, spending on long-lasting goods such as automobiles increased 0.9 percent. Outlays on services like utilities rose 0.5 per cent. When adjusted for inflation, consumer spending rose 0.4 per cent. Personal income increased 0.3 per cent in August.

Overall inflation remained muted, reflecting low oil prices. Inflation, which has persistently run below the Fed's 2 per cent target in annual terms, rose just 0.3 per cent in August from the same month a year earlier.

However, prices were up 1.3 per cent when excluding food and energy, a key metric used by the Fed to gauge the trend rate of inflation. This so-called core PCE price index has been holding around 1.3 per cent through 2015.