US Consumer Spending Soft in August

US Consumer Spending Soft in August”

Consumer spending accounts for almost 70% of economic activity but the August dip may not be of much concern.

Of more concern is that inflation remained sluggish in August, with the personal consumption expenditures price index excluding food and energy rising 0.1%.

The Federal Reserve is facing mixed signals on USA inflation as it weighs whether to raise short-term interest rates one more time in 2017.

Consumer spending rose by just 0.1% last month, the Commerce Department said, reflecting the impact of Hurricane Harvey.

"The Fed appears poised to look through surprises in inflation data over the next few months", said Ellen Zentner, chief US economist at Morgan Stanley in NY. But many economists believe growth has slowed in the current July-September quarter, reflecting the impact of a string of devastating hurricanes and the subsequent slowdown in consumer spending, which accounts for almost 70 percent of economic activity.

Relatively low inflation readings this year have been symptomatic of subdued wage growth.

Many economists, however, believe the Fed will not boost rates again this year unless inflation begins moving back toward the 2 percent goal. That was the first decline in price-adjusted outlays since January, driven in part by weak auto sales.

US consumer spending rose only slightly in August, providing further evidence of Hurricane Harvey's effects on the economy, while inflation remained stubbornly low. He also said unseasonably cool temperatures in the Northeast and power outages in storm-affected areas could have reduced utility spending during the month. But economists think the powerful hurricanes that hit the August and September will depress economic activity during the third quarter, which ends this weekend. This is despite the USA labour market remaining relatively tight. Growth would likely rebound in subsequent quarters as rebuilding efforts take shape.

While still being well below the Fed´s 2% inflation target, it marks the lowest core PCE rate since 2015.

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