US Economic Growth: Consumer Spending Up, Inflation Moderate
US consumer spending saw a steady increase in August, supporting expectations of solid economic growth in Q-3, while a measure of underlying inflation remained at the Fed’s 2 percent target for a 4th month running.
Friday, economists said the report from the US Commerce Department should allay any fears of the economy overheating and likely keeps the Fed on a gradual path of interest rate increases aka a ‘soft landing’.
The Fed raised rates Wednesday for the 3rd time this year and removed the reference to monetary policy remaining “accommodative.”
Growth is solid and inflation pressures modest. This is the environment the Fed needs to move interest rates up at a gradual pace as further rate hikes start to look like tightening.
The US Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3% last month after an unrevised 0.4% gainer 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% after climbing 0.3% in July.
The report came on the heels of data 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 GDP (gross domestic product) growth estimates for Q-3 to as low as a 2.8% annualized rate.
Q-3 GDP growth forecasts were previously as high as a 4.4% pace.
The Atlanta Fed’s estimate is 3.6% down from 4.4% earlier this week.
Consumer spending is being driven by a tightening labor market, which is starting to boost wage growth, as well as higher savings. It is also being supported by robust consumer confidence.
A separate report on Friday showed the University of Michigan’s (MSI) consumer sentiment index at a 6-month high in September. A survey earlier this week from the Conference Board showed consumer confidence hitting an 18-year high in September. The Conference Board places more weight on the labor market.
Keeping America Great!
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