Consumer Spending Up 0.4% In August

Personal income increased 0.3 percent in August.

Data released by the U.S. Department of Commerce showed that personal spending rose by 0.4 percent in August.

Monday’s report showed that consumers stepped up spending on durable goods – products like autos and electronics created to last at least three years – and services.

The government’s preliminary estimates for income and spending in August were both revised higher by one tenth of a percentage point to reveal gains of 0.5% and 0.4% month-on-month, respectively. The monthly gain of 0.4% beat expectations and was bolstered by an upward revision to July figures, taking them to 0.4% as well.

“Overall consumer spending remains robust and highlights a solid employment backdrop”, Bricklin Dwyer, a senior economist at BNP Paribas, said in a note to clients. They expect prices to start to accelerate over the next year, and some worry inflation might get out of hand unless the bank begins to raise rates soon. “We’re anticipating a few quarters of strong consumer spending”. This came despite a slower-than-expected expansion in income.

Inflation, though, was weak: the PCE price index, the key measure that the Fed watches to guide policy, was up just 0.3 percent from a year ago.

“The energy dividend from low oil prices will fall right through to consumers’ purchasing power”, Aneta Markowska, chief US economist at Societe Generale in New York, said before the report. The PCE index has risen 0.3% in the past 12 months, offering little evidence that inflation is about to surge close to the Federal Reserve’s 2% target. Incomes have also risen steadily since the early spring, largely reflecting strong job creation that’s tugged the unemployment rate down to a post-recession low of 5.1%.

Americans also trimmed their saving rate slightly.

Fed Chairwoman Janet L. Yellen said Thursday that she and most of her colleagues expected to increase the rate this year.