The consensus forecast among economists is that, in August, personal income rose 0.4% while personal spending rose 0.3%, both unchanged compared to the prior month. The result follows a 0.5 per cent income gain in July, which had been the best showing in eight months.
Consumer spending accounts for two-thirds of economic activity. The slide in gasoline prices has also helped to support saving and spending behavior.
In August, consumer spending rose a seasonally adjusted 0.4% to match the revised gain in July, the Commerce Department reported Monday.
Personal income, reflecting Americans’ pretax earnings from salaries and investments, climbed 0.3% in August.
“As is usually the case, the path of the labor market is going to be the prime driver of consumer spending growth in the months ahead”, said Joshua Shapiro, chief US economist at MFR Inc.
By maintaining spending, consumers are helping the USA overcome global risks that threaten to weigh on growth.
Consumers are a mainstay of the US economy.
The deflator for personal consumption expenditures was flat versus August and advanced at 0.3% year-on-year pace, the same as in August, as expected by analysts. He predicted that spending in the current July-September quarter would remain robust at an annual rate above 3 per cent. Low inflation could allow the Fed to keep interest rates lower for longer and even push back to 2016 the central bank’s first interest-rate hike since the recession ended.
Fed Chair Janet Yellen has said the recent drop in oil prices and the further appreciation of USA dollar have put some downward pressure in the near-term on inflation, which means that it will take a bit more time for these transitory effects to fully dissipate. Excluding food and energy, the figure was up 0.1%.
Since spending grew faster than income, the amount of money individuals save fell a tick to 4.6% from 4.7%.
That’s a strong rebound from an anemic rate of 0.6 per cent in the January-March period.
Ian Shepherdson of Pantheon Macroeconomics said the new data added more evidence for U.S. economic growth picking up strength.