US consumer spending rises; Income growth smallest in 15 months

WASHINGTON (Reuters) – Consumer spending in the US rose for the seventh consecutive month in September, but income, with moderate wage growth, had the lowest profit in more than a year, suggesting that the current pace of spending is unlikely to continue.

FILE PHOTO – A family shops at Wal-Mart Super Center in Springdale, Arkansas on June 4, 2015. REUTERS / Rick Wilking / File Photo

The Commerce Department said on Monday that consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4 percent last month as households bought more motor vehicles and spent more on health care.

August data has been revised to increase spending by 0.5% instead of the previously reported 0.3% gain.

Reuters surveyed economists forecast a 0.4% increase in consumer spending in September. Adjusted for inflation, consumer spending rose by 0.3 percent. The so-called real consumer spending climbed in August by 0.4 percent.

Data was included in last Friday's third quarter gross domestic product report, which showed that consumer spending accelerated at an annualized rate of 4.0 percent, the fastest in nearly four years.

The economy grew 3.5 percent in the third quarter, down from the strong April-June period of 4.2 percent.

US Treasury prices were lower on Monday, while futures on US stock indices were higher. Dollar .DXY was slightly stronger against a basket of currencies.

Savings fall

The rise in real consumer spending in September leads to a solid growth path into the fourth quarter.

But the momentum is likely to slow. Personal income rose 0.2% in September, the smallest increase since June 2017, after rising 0.4% in August. Wages rose 0.2 percent after a jump of 0.5 percent in August.

Wage growth remains gradual, although the unemployment rate is close to a 49-year low of 3.7 percent. The savings rate fell to $ 975.7 billion last month, the lowest level since December 2017, from $ 1.0 trillion in August.

The moderation in income and savings is based on signs that the stimulus from Trump's $ 1.5 trillion tax package has peaked. In addition, the sell-off on the stock markets is seen as a decline in household wealth.

In September, spending on goods rose 0.6 percent. Consumers also spent more on sporting goods. Expenditure on services rose by 0.3 per cent, with health care spending offsetting a decline in restaurant and accommodation expenses.

Prices rose steadily in September. The Consumer Discretionary Price Index (PCE) excluding the volatile food and energy components rose 0.2 percent after stagnating in August.

Thus, the so-called core PCE price index increased for the fifth month in a row by 2.0 percent compared to the previous year.

The core PCE index is the Federal Reserve's preferred inflation measure. It hit the US Federal Reserve's inflation target of 2 percent for the first time since April 2012.

The Fed is expected to raise interest rates again in December, despite the worsening of financial market conditions caused by the decline in equity markets and an increase in US Treasury yields. The central bank raised interest rates for the third time this year in September, removing a reference to "expansive" monetary policy from its policy statement.

Reporting by Lucia Mutikani; Editing by Paul Simao

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