U.S. Consumer Spending Rises in September

WASHINGTON (Reuters) – U.S. consumer spending increased by 0.5% in September, exceeding expectations and pushing the economy towards higher growth as the year ends.

Consumer spending, which makes up over two-thirds of U.S. economic activity, rose following an upwardly revised gain of 0.3% in August, according to the Commerce Department’s Bureau of Economic Analysis on Thursday.

Economists had predicted a 0.4% increase after an earlier reported 0.2% rise in August.

This data was part of the advance gross domestic product report for Q3 released on Wednesday. Overall, consumer spending grew at a 3.7% annualized rate, the highest since Q1 2023, and accounted for most of the economy’s 2.8% growth last quarter.

The boost in spending stems from a strong labor market and increased household net worth, spurred by a booming stock market and rising home prices. However, concerns arise regarding growth being primarily driven by middle- and upper-income households, who have greater flexibility in their consumption.

Meanwhile, subsiding inflation has provided some relief to households, particularly those with lower incomes.

The Personal Consumption Expenditures (PCE) price index rose by 0.2% in September, following an unrevised 0.1% increase in August. Economists had predicted a 0.2% rise in PCE inflation.

For the year ending in September, the PCE price index increased by 2.1%, marking the smallest year-on-year increase since February 2021, down from 2.3% in August. Core inflation, excluding food and energy, rose by 0.3% after a 0.2% rise in August, with core inflation at 2.7% for three consecutive months, tracked by the Federal Reserve towards its 2% target.

Last month, the U.S. central bank began its policy easing cycle, implementing an unusual half-percentage-point interest rate cut, the first since 2020. Currently, the Fed’s policy rate is in the 4.75%-5.00% range, having been increased by 525 basis points in 2022 and 2023. A 25 basis point rate cut is expected next Thursday.