WASHINGTON (Reuters) – U.S. consumer spending increased slightly more than expected in September, putting it and the economy on a higher growth trajectory heading into the final three months of the year.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month after an upwardly revised 0.3% gain in August, the Commerce Department’s Bureau of Economic Analysis reported on Thursday.
Economists polled by Reuters had forecast consumer spending advancing 0.4% after a previously reported 0.2% rise in August.
The data was included in the advance gross domestic product report for the third quarter, which was published on Wednesday. Consumer spending increased at a 3.7% annualized rate, the most since the first quarter of 2023, contributing the bulk of the economy’s 2.8% growth pace last quarter.
Spending is being driven by a resilient labor market as well as a rise in household net worth, thanks to a stock market boom and higher house prices. But there are worries that growth is mostly being driven by middle- and upper-income households, which have more flexibility and substitutability of consumption.
Subsiding inflation is, however, offering some relief for households, especially lower-income families.
The personal consumption expenditures (PCE) price index increased 0.2% in September after an unrevised 0.1% gain in August. Economists had forecast PCE inflation climbing 0.2%.
In the 12 months through September, the PCE price index increased 2.1%. That was the smallest year-on-year rise in PCE inflation since February 2021 and followed a 2.3% advance in August. Excluding the volatile food and energy components, the PCE price index rose 0.3% after increasing 0.2% in August.
In the 12 months through September, core inflation increased 2.7% for the third straight month. The Federal Reserve tracks the PCE price measures for its 2% inflation target.
The U.S. central bank last month launched its policy easing cycle with an unusually large half-percentage-point interest rate cut, the first reduction in borrowing costs since 2020.
The Fed’s policy rate is now set in the 4.75%-5.00% range, having been hiked by 525 basis points in 2022 and 2023. The Fed is expected lower rates by 25 basis points next Thursday.
(Reporting by Lucia Mutikani; Editing by Dan Burns)
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