Hurricanes spur US consumers to boost spending
Print Edition
US consumer spending recorded its biggest increase in more than eight years in September, likely as households in Texas and Florida replaced flood-damaged motor vehicles, but underlying inflation remained muted.
The Commerce Department said yesterday consumer spending, which accounts for more than two-thirds of US economic activity, jumped 1 percent last month. The increase, which also included a boost from higher household spending on utilities, was the largest since August 2009.
Consumer spending rose by an unrevised 0.1 percent in August. Economists polled by Reuters had forecast consumer spending increasing 0.8 percent in September.
The data were included in last Friday’s third-quarter gross domestic product report, which showed consumer spending growth slowing to a 2.4 percent annual rate after a robust 3.3 percent pace in the second quarter.
Inventory investment rises
The moderation in consumption was offset by a rise in inventory investment, business spending on equipment and a drop in imports, which left the economy growing at a 3 percent rate in the third quarter after the April-June period’s brisk 3.1 percent pace.
The Commerce Department said September data reflected the effects of Hurricanes Harvey and Irma, but said it could not quantify the total impact of the storms on consumer spending and personal income.
Consumer spending in September was buoyed by purchases of motor vehicles, probably as drivers in Texas and Florida replaced automobiles that were destroyed when Harvey and Irma slammed the states in late August and early September. Spending on long-lasting goods like autos surged 3.2 percent last month. Outlays on services rose 0.5 percent.
Though disruptions to the supply chain as a result of the hurricanes also likely contributed to an uptick in inflation last month, underlying price pressures remained benign.
The Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, edged up 0.1 percent in September. The so-called core PCE has now risen by 0.1 percent for five straight months.
The core PCE increased 1.3 percent in the 12 months through September after a similar gain in August. The core PCE has undershot the Fed’s 2 percent target for nearly 5-1/2 years.
The soft core PCE readings are likely to intensify the inflation debate among Fed officials, who are holding a policy meeting today and tomorrow. The US central bank is not likely to raise interest rates this week, but is expected to do so in December. It has raised rates twice this year.
When adjusted for inflation, consumer spending increased 0.6 percent in September after slipping 0.1 percent in August.
While that placed consumer spending on a higher growth trajectory heading into the fourth quarter, it is unlikely to be sustained as households increasingly depended on dwindling savings to fund purchases.
Personal income climbed 0.4 percent last month after increasing 0.2 percent in August. Wages advanced 0.4 percent. Savings declined to US$441.9 billion in September, the lowest level since August 2008, from US$521.4 billion in the prior month.
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