US consumer spending increases steadily in August

[WASHINGTON] US consumer spending increased steadily in August, while a measure of underlying inflation remained at the Federal Reserve's 2 per cent target for a fourth straight month.

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3 per cent last month after an unrevised 0.4 per cent gain in July. Spending last month was driven by outlays on healthcare, which offset a drop in motor vehicle purchases.

August's increase in consumer spending was in line with economists' expectations.

When adjusted for inflation, consumer spending rose 0.2 per cent in August after climbing 0.3 per cent in July.

The report came on the heels of data on Thursday showing a decline in orders for key capital goods in August and a further widening of the goods trade deficit, which prompted economists to downgrade their gross domestic product estimates for the third quarter to as low as a 2.8 per cent annualized rate.

The economy grew at a 4.2 per cent pace in the second quarter, powered by robust consumer spending as well as farmers front-loading soybean exports to China before Beijing's retaliatory tariffs came into effect in early July.

The United States and China are embroiled in an escalating trade war. Economists have warned that the increasingly bitter trade fight could undercut business and consumer spending.

In August, spending on goods increased 0.3 per cent, likely lifted by higher gasoline prices. Outlays on services advanced 0.4 per cent, with spending on healthcare accounting for much of the increase.

There was a moderation in monthly price gains in August. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components was unchanged after rising 0.2 per cent in July.

That left the year-on-year increase in the so-called core PCE price index at 2.0 per cent. The core PCE index is the Fed's preferred inflation measure. It hit the US central bank's 2 per cent inflation target in March for the first time since April 2012.

The Fed raised interest rates on Wednesday for the third time this year, and Chairman Jerome Powell told reporters that policymakers expected inflation to remain at the central bank's target "on a sustained basis."

In August, personal income rose 0.3 per cent after increasing by the same margin in July. Wages jumped 0.5 per cent. The saving rate was unchanged at 6.6 per cent last month.

REUTERS