Washington — 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 on Monday that consumer spending, which accounts for more than 66% of US economic activity, jumped 1.0% last month. The increase, which also included a boost from higher household spending on utilities, was the largest since August 2009.
Consumer spending increased by an unrevised 0.1% in August. Economists polled by Reuters had forecast consumer spending increasing 0.8% in September.
The data was included in last Friday’s third-quarter GDP report, which showed that growth in consumer spending growth slowed to a 2.4% annualised rate after a robust 3.3% growth pace in the second quarter.
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% rate in the third quarter after the April-June period’s brisk 3.1% 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 cars that were destroyed when Harvey and Irma slammed the states in late August and early September. Spending on long-lasting goods like cars surged 3.2% last month.
Outlays on services rose 0.5%. Although disruptions to the supply chain as a result of the hurricanes also probably contributed to an uptick in inflation last month, underlying price pressures remained benign.
The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, edged up 0.1% in September. The so-called core PCE has now increased by 0.1% for five consecutive months.
The core PCE increased 1.3% in the 12 months to end-September after a similar gain in August. The core PCE has undershot the Fed’s 2% target for nearly five-and-a-half years.
When adjusted for inflation, consumer spending increased 0.6% in September after slipping 0.1% in August. While that put consumer spending on a higher growth trajectory heading into the fourth quarter, the pace of increase is unlikely to be sustained amid moderate wage gains.
Personal income rose 0.4% last month after increasing 0.2% in August. Wages advanced 0.4%. Savings fell to $441.9bn in September from $521.4 bn in August.