Americans kept on spending in September as income gains cooled, pushing down the savings rate to the lowest this year. Inflation matched the Federal Reserve's target, reinforcing the central bank's outlook for gradual interest-rate hikes.
Purchases, which account for about 70 percent of the economy, rose 0.4 percent from August, matching economists' estimates, after an upwardly revised 0.5 percent increase, Commerce Department figures showed Monday.
Incomes advanced a less-than-projected 0.2 percent, the weakest in more than a year, while Americans saved 6.2 percent of their disposable income, matching the lowest level since 2013
Real disposable income, or earnings adjusted for taxes and inflation, advanced 0.1 percent, a five-month low.
The figures show spending in September helped lift consumption during the quarter to what gross domestic product data Friday showed was the fastest increase since 2014. Last month's rise reflected gains in durable goods, particularly motor vehicles and parts.
At the same time, the slower-than-expected income growth suggests that any meaningful, sustained pay gains remain elusive, though Hurricane Florence may have had an impact on September's figures.
Risks to the outlook include President Donald Trump's global trade war, which is boosting prices and making some companies hesitant to invest, as well as a stock market plunge and a fading of the effects from fiscal stimulus. At the same time, consumer optimism remains elevated amid a tight labor market and lower taxes, providing support for spending in the final quarter.
The report "bodes well for the consumer remaining strong through the end of the year," said Stephen Stanley, chief economist at Amherst Pierpont Securities. "You never like to see the savings rate falling but it's still at a robust level."
The Fed's preferred inflation gauge -- tied to consumption -- rose 0.1 percent from the previous month, matching projections, and was up 2 percent from a year earlier. Excluding food and energy, so-called core prices rose 0.2 percent, slightly above the median estimate for a 0.1 percent rise, and were also up 2 percent on an annual basis.
"The Fed has to be pretty happy with the fact that we've finally gotten the 2 percent on core and we seem to be staying there, not falling back or accelerating," Stanley said. "That argues for them getting back to neutral. They don't have to rush to get there and they don't need to speed up from the pace we've seen so far."
While inflation has mostly remained below the central bank's 2 percent target since 2012, it's made progress in the past few months and Fed officials are expected to raise interest rates for a fourth time this year in December.
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.
The Labor Department's monthly jobs report, due Friday, is projected to show employers added 193,000 workers in October while the jobless rate held at 3.7 percent.
Information for this article was contributed by Josh Boak of The Associated Press.
Business on 10/30/2018