US Consumer Spending Rises, Monthly Inflation Slows
US consumer spending increased steadily in August, supporting expectations of solid economic growth in the third quarter, while a measure of underlying inflation remained at the Federal Reserve's 2% target for a fourth straight month.
The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3% last month after an unrevised 0.4% gain in July. Spending last month was driven by outlays on healthcare, which offset a drop in motor vehicle purchases.
August's increase in consumer spending was in line with economists' expectations.
When adjusted for inflation, consumer spending rose 0.2% in August after climbing 0.3% in July.
Decline In Orders For Key Capital Goods
The report came on the heels of data on Thursday showing a decline in orders for key capital goods in August and a further widening of the goods trade deficit, which prompted economists to downgrade their gross domestic product estimates for the third quarter to as low as a 2.8% annualized rate.
The economy grew at a 4.2% pace in the second quarter, powered by robust consumer spending as well as farmers front-loading soybean exports to China before Beijing's retaliatory tariffs came into effect in early July.
The United States and China are embroiled in an escalating trade war. Economists have warned that the increasingly bitter trade fight could undercut business and consumer spending.
US treasury yields held near session lows after the data. US stock index futures were trading lower and the dollar was stronger against a basket of currencies.
In August, spending on goods increased 0.3%, likely lifted by higher gasoline prices. Spending on goods rose 0.5% in July. Outlays on services advanced 0.4%, with spending on healthcare accounting for much of the increase.
Moderation In Monthly Price Gains
There was a moderation in monthly price gains in August. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components was unchanged. That was the weakest reading since March 2017 and followed a 0.2% gain in July.
August's flat reading left the year-on-year increase in the so-called core PCE price index at 2.0%. The core PCE index is the Fed's preferred inflation measure. It hit the US central bank's 2% inflation target in March for the first time since April 2012.
The Fed raised interest rates on Wednesday for the third time this year, and Chairman Jerome Powell told reporters that policymakers expected inflation to remain at the central bank's target "on a sustained basis."
In August, personal income rose 0.3% after increasing by the same margin in July. Wages jumped 0.5%, the biggest gain in seven months, after rising 0.3% in July. The saving rate was unchanged at 6.6% last month.