WASHINGTON: US consumer spending unexpectedly fell in August for the first time in seven months while inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates.
The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of US
economic activity, fell 0.1 per cent last month after accounting for inflation.
Analysts polled by Reuters had expected a 0.1 per cent gain.
Yields on US government debt fell after the data and the dollar weakened against a basket of currencies, signalling investor doubts about the prospect of a near-term Fed rate increase. US stock futures trimmed gains.
Fed Chair Janet Yellen said last week she expected the US
central bank would raise rates once this year to keep the economy from eventually overheating.
Prices for fed funds futures suggest investors see almost no chance of a hike at the Fed’s next policy meeting in early November and roughly even odds of an increase at its mid-December meeting, according to CME Group.
Consumer spending, which has been robust in recent months, partially offset the drag from weak business investment and falling inventories in the second quarter when the economy expanded at a lacklustre 1.4 per cent annual rate.
While overall economic growth could still accelerate in the current quarter even with August’s slight decline in consumer spending, households appear to be spending with less gusto than in prior months.
Consumer spending has been driven by a tightening labour market, which Yellen said this week might be lifting incomes.
Personal income rose 0.2 per cent in August, in line with expectations.
Consumer prices also rose about as much expected in August, with the price index excluding food and energy increasing 0.2 per cent from the prior month. That left inflation excluding food and energy at 1.7 per cent in the 12 months through August, up a tenth of a percentage point from the prior month and closer to the Fed’s 2 per cent inflation target.