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US consumer spending records its biggest increase in eight years

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WASHINGTON: US consumer spending recorded its biggest increase in more than eight years in September, likely as households in Texas and Florida replaced flood-damaged motor vehicles, but underlying inflation remained muted. The Commerce Department said on Monday consumer spending, which accounts for more than two-thirds of US economic activity, jumped 1.0 per cent last month.


The increase, which also included a boost from higher household spending on utilities, was the largest since August 2009.


Consumer spending rose by an unrevised 0.1 per cent in August. Economists had forecast consumer spending increasing 0.8 per cent in September.


Prices of US Treasuries were higher in early morning trading while the dollar was weaker against a basket of currencies.


US stock index futures were mixed.


The data was included in last Friday’s third-quarter gross domestic product report, which showed consumer spending growth slowing to a 2.4 per cent annualised rate after a robust 3.3 per cent pace in the second quarter.


The moderation in consumption was offset by a rise in inventory investment, business spending on equipment and a drop in imports, which left the economy growing at a 3.0 per cent rate in the third quarter after the April-June period’s brisk 3.1 per cent pace.


The Commerce Department said September data reflected the effects of Hurricanes Harvey and Irma, but said it could not quantify the total impact of the storms on consumer spending and personal income.


Consumer spending in September was buoyed by purchases of motor vehicles, probably as drivers in Texas and Florida replaced automobiles that were destroyed when Harvey and Irma slammed the states in late August and early September.


Spending on long-lasting goods like autos surged 3.2 per cent last month. Outlays on services rose 0.5 per cent.


Though disruptions to the supply chain as a result of the hurricanes also likely contributed to an uptick in inflation last month, underlying price pressures remained benign.


The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, edged up 0.1 per cent in September.


The so-called core PCE has now increased by 0.1 per cent for five straight months.


The core PCE increased 1.3 per cent in the 12 months through September after a similar gain in August.


The core PCE has undershot the Fed’s 2 per cent target for nearly 5-1/2 years. The soft core PCE readings are likely to intensify the inflation debate among Fed officials, who are holding a policy meeting on Tuesday and Wednesday.


The US central bank is not likely to raise interest rates this week, but is expected to do so in December.


It has raised rates twice this year.


When adjusted for inflation, consumer spending increased 0.6 per cent in September after slipping 0.1 per cent in August.


While that put consumer spending on a higher growth trajectory heading into the fourth quarter, it is unlikely to be sustained as households increasingly rely on dwindling savings to fund purchases.


Personal income rose 0.4 per cent last month after increasing 0.2 per cent in August.— Reuters


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