United States consumer spending rises in August; core inflation firms slightly

The consensus forecast among economists was that, in August, personal income rose 0.4% while spending rose 0.3%.

Consumer sentiment is improving from earlier lows, partly thanks to consumer spending rising by 0.4% in August, which is 10 basis points higher than the July reading. In both months, the figures reflected strong gains in purchases of durable goods such as autos.

Personal spending, measuring how much Americans paid for everything from home appliances to health care, rose 0.4% in August from a month earlier, the Commerce Department said Monday.

Within the wages and salaries component, there was also solid growth at a positive 0.5% and 0.6% over the last two months, respectively. “We expect these themes to continue through the end of this year”.

The government on Friday issued its final estimate for overall economic growth for the spring, saying the gross domestic product expanded at an annual rate of 3.9 percent in the April-June quarter. He predicted that spending in the current July-September quarter would remain robust at an annual rate above 3 percent. The chart below shows the relationship between income, spending, and savings over the past year.

Inflation has stayed stubbornly below the central bank’s 2 percent target since 2012, which makes it harder for the Fed to justify tighter policy.

The slowdown in income growth in August meant that that the saving rate slipped a bit to 4.6 percent of after-tax incomes, down from 4.7 percent in July.

The report could help convince investors of Fed Chair Janet Yellen’s view, most recently expressed on Thursday, that the economy was strong enough to warrant a rate increase this year.

PCE was expected to be flat month-on-month, and at 0.3% year-on-year.

“The energy dividend from low oil prices will fall right through to consumers’ purchasing power”, Aneta Markowska, chief USA economist at Societe Generale in New York, said before the report.

The price index for personal consumption expenditures rose less than 0.1% in August following a 0.1% increase the previous month.