WASHINGTON – Consumers boosted their spending in September at the fastest pace in three months, while their incomes grew by a modest amount.
Consumer spending increased 0.5 per cent, a significant rebound from August when spending fell 0.1 per cent, the Commerce Department said Monday. The increase was led by a 1.3 per cent surge in spending on autos and other durable goods. Incomes increased 0.3 per cent in September, slightly faster than the 0.2 per cent gain in August.
The overall economy grew at a 2.9 per cent rate in the July-September quarter, more than double the 1.4 per cent increase in the second quarter. That acceleration in activity came even though growth in consumer spending slowed after a burst in the spring. But the latest figure indicates that the quarter ended on a positive note, with solid spending momentum heading into the end of the year.
Jennifer Lee, senior economist at BMO Capital Markets, said the report depicted a “good handoff” from the third quarter going into the fourth quarter.
“More money coming in helped support stronger spending,” Lee said, noting that the rise in incomes marked the seventh consecutive increase.
The September result was the best showing since a similar gain in June. While the quarter started well, spending slowed to a 0.3 gain in July before falling by 0.1 per cent in August. Economists closely watch consumer spending since it accounts for two-thirds of economic activity.
In addition to the big gain in spending on durable goods, spending on non-durable goods such as clothing also showed a solid increase of 0.6 per cent in September. Spending on services, a category that includes doctors’ visits and utility payments, was up 0.3 per cent.
A key inflation gauge followed by the Federal Reserve was up a slight 0.2 per cent in September, while core prices, excluding food and energy, rose only 0.1 per cent. Over the past year, core prices are up just 1.7 per cent, still below the Fed’s 2 per cent inflation target.
Fed officials meet this week, but they are expected to its key policy rate unchanged at 0.25 per cent to 0.5 per cent, where it has been since December of last year.
With spending rising faster than incomes, the personal saving rate slipped slightly to 5.7 per cent in September, down from 5.8 per cent in August.