Personal consumption expenditures (PCE) rose 0.4% in August, the same monthly gain as July, but year-over-year were up a modest 3.2%. Economists polled by MarketWatch had forecast a seasonally adjusted 0.3% increase in spending and a 0.4% gain in income.
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Consumers increased spending by 0.4% in August, a strong month of auto buying and back-to-school purchases at retailers.
Incomes grew 0.3 percent in the month, compared to 0.5 percent in July, but disposable income was up 0.4 percent, holding the same pace since the beginning of the year.
In a preview to clients, Wells Fargo’s John Silvia wrote, “While real spending activity has continued to pick up, the rate of saving has also been increasing, reflecting the continued caution exhibited by consumers”.
With unemployment falling in August to a seven-year low of 5.1 percent, the Fed is close to achieving its goal, but inflation has remained stubbornly low. Core prices, which remove food and energy costs, climbed 0.1 per cent from July and are up 1.3 per cent from a year earlier. Durable and nondurable goods spending were both higher for the month, up 1.2 percent and 0.6 percent, respectively. The Fed puts greater significance on the PCE measure of inflation as it covers a wider range of household spending but August’s figure is unlikely to provide any clearer signal that inflation is on course to rise towards the 2% target in the near term.
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.
But the USA dollar firmed following the consumer spending report, as did yields on US government debt, signs that a few investors were bringing forward their bets on a rate increase. Uncertainty in the financial markets and rising prices for homes are stirring doubts about affordability for many would-be buyers. And people who invested their down payment savings in stocks have suffered losses since August.
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Information for this article was contributed by Martin Crutsinger and Josh Boak of The Associated Press, by Jim Puzzanghera of the Los Angeles Times and by Victoria Stilwell of Bloomberg News.
