US consumer spending rises moderately in August; inflation slows

NEW YORK - US 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 US economic activity, rose 0.2 per cent in August after an unrevised 0.5 per cent gain in July, the Commerce Department’s Bureau of Economic Analysis reported on Sept 27. 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 Sept 26 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 to 5 per cent range, the first reduction in borrowing costs since 2020, which Fed chair Jerome Powell said was meant to demonstrate policymakers’ commitment to sustaining a low unemployment rate.

Growth estimates for the third quarter are around a 2.9 per cent annualised rate, with consumer spending seen matching the April to June quarter’s pace. The economy grew at a 3 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 to 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 to August, core inflation advanced 2.7 per cent after climbing 2.6 per cent in July.

The US central bank tracks the PCE price measures for its 2 per cent inflation target.

Early on Sept 27, financial markets saw a roughly 50 per cent chance of another half-percentage-point rate cut at the Fed’s Nov 6 to Nov 7 policy meeting, according to CME’s FedWatch tool. The odds of a 25 basis points rate reduction were around 50 per cent.

The Fed raised its policy rate by 525 basis points in 2022 and 2023. REUTERS