U.S. consumer spending rose in September by a solid, inflation-adjusted 0.3 percent, led by increased spending on health care services and motor vehicles.
Josh Boak of the Associated Press had the news:
Consumer spending accounts for the majority of U.S. economic activity, and it was the key driver of overall growth during the July-September quarter. The economy climbed at an annual rate of 3.5 percent in that quarter, helped by the strongest jump in consumer spending in about four years, the Commerce Department said Friday.
But economic growth slowed from a 4.2 percent gain in the second quarter as the pace of business investment fell and continued growth may depend even more on consumer spending.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, expects that consumer spending will begin to slow after having gotten a jolt this year from the tax cuts signed into law by President Donald Trump.
“Spending recently has been boosted by the tax cuts but the incremental boost to spending power is now over,” Shepherdson said.
Lucia Mutikani of Reuters reported that income recorded its smallest gain in a year:
The report from the Commerce Department on Monday also showed the increase in income at the disposal of households was the smallest in 15 months and savings dropped to their lowest level since December last year.
There are signs the stimulus from the Trump administration’s $1.5 trillion tax cut package has peaked. Higher interest rates and falling household wealth after a sharp stock market selloff are also casting a shadow on spending.
“It remains to be seen how long the spending spree can continue,” said Sung Won Sohn, chief economist at SS Economics in Los Angeles. “The stimulus from the tax cut has plateaued. Rising interest rates and volatile stock markets are having a psychological as well as a real effect.”
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month as households bought more motor vehicles and spent more on health care. Data for August was revised up to show spending advancing 0.5 percent instead of the previously reported 0.3 percent gain.
Jeffrey Bartash of MarketWatch.com reported that consumers spent more on recreation and cars:
Americans spent more on new cars and trucks as well as recreational goods in September. They also shelled out more for health care.
The increase in spending outstripped gains in income, possibly because of disruptions caused by Hurricane Florence. The biggest drop-off in income occurred among individual-owned businesses.
In any case, the disparity caused the U.S. savings rate to fall again to 6.2% from 6.4%. The savings rate has fallen all year from a two-year high of 7.4% in February, though it’s still relatively healthy.
Big picture: Consumers are spending at a rate sufficient to keep the economy going strong and inflation appears contained for now. The 2% rate of inflation is exactly where the Federal Reserve would like it.
