In August, the United States saw a moderate rise in consumer spending, accompanied by a decline in inflationary pressures, indicating that the economy maintained some of its robust growth from the previous quarter. Consumer spending, which is a key driver of the U.S. economy, rose 0.2 percent after rising 0.5 percent in July, according to the Commerce Department’s Bureau of Economic Analysis. This growth, although slightly lower than the 0.3% forecast by economists, continues to be supported by substantial wage gains.
Revised national accounts data released on Thursday found that wages and salaries rose more than initially estimated in the second quarter, and the savings rate was also higher than previously reported.
These adjustments suggest consumers have higher incomes and savings, which could support spending throughout the rest of the year. Concerns had been raised about the possibility of consumers using their savings to finance purchases amid uncertainties in the labor market, including a rise in the unemployment rate above 4%.
In an effort to keep unemployment low, the Federal Reserve cut its benchmark overnight interest rate by 50 basis points last week, bringing it down to the 4.75%-5% range. The reduction, the first since 2020, was described by Fed Chairman Jerome Powell as a commitment to maintaining economic stability.
Estimates for the annualized growth rate for the third quarter are around 2.9%, with consumer spending expected to maintain the pace of the second quarter. The economy had grown at a rate of 3.0% in the second quarter.
The Personal Consumption Expenditures (PCE) price index, which is closely watched by the Federal Reserve for its 2% inflation target, saw a modest increase of 0.1% in August after increasing by 0. 2% in July.
Over the 12 months through August, the PCE price index rose 2.2%, slowing from a 2.5% increase in July. Excluding food and energy, core inflation rose 0.1% in August, up 2.7% over the past 12 months, slightly higher than July’s 2.6%.
Financial markets assessed early Friday the likelihood of further rate cuts by the Fed at its November 6-7 meeting. The CME’s FedWatch tool indicated roughly equal chances of another half-percentage-point cut or a smaller 25-basis-point cut. Over the years 2022 and 2023, the Fed had increased its policy rate by a total of 525 basis points.
Reuters contributed to this article.
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