Consumer Spending in U.S. Climbs by Most in Three Months

(Bloomberg) -- Consumer purchases climbed in September by the most in three months as incomes grew, signaling momentum in the biggest part of the U.S. economy.

The 0.5 percent advance in spending, which accounts for about 70 percent of the economy, followed a 0.1 percent decline the prior month that was revised lower, a Commerce Department report showed Monday. The median forecast in a Bloomberg survey called for a 0.4 percent gain.

While the results indicate a solid handoff into the final quarter of 2016, disposable income, or the inflation-adjusted money left over after taxes, was little changed for a second month, indicating wages will need to pick up to boost spending even more. Such support is needed to drive faster economic growth, which picked up last quarter despite softer household purchases.

“We entered the holiday quarter with good support from the consumer,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “As long as we continue to see employment growth and wage growth, that'll put more money in people's pockets and give them the ability to spend at a faster pace.”

Nominal incomes rose 0.3 percent after a 0.2 percent gain. Rising inflation, however, is taking a bigger toll. Disposable incomes were up 2.1 percent in September from a year earlier, the weakest advance since January 2014.

Inflation-adjusted spending rose 0.3 percent in September after a 0.2 percent decline. The advance in purchases included a 1.8 percent jump in durable goods.

Third Quarter

The September figures provide more perspective on how consumer spending was doing toward the end of the quarter. Gross domestic product climbed at a 2.9 percent annualized rate in the third quarter after a sluggish first half, data showed Friday. Household purchases grew 2.1 percent, or about half the pace as in the previous three-month period.

For September, forecasts for consumer spending ranged from no change to an increase of 0.6 percent, according to the Bloomberg survey. The previous month's reading was initially reported as little-changed.

The Bloomberg survey median for incomes was 0.4 percent, after a previously reported 0.2 percent gain.

The saving rate decreased to 5.7 percent from 5.8 percent. Wages and salaries rose 0.3 percent.

The report's price gauge based on the personal consumption expenditures index, the Federal Reserve's preferred measure of inflation, rose 1.2 percent from a year earlier, the most since November 2014.

The core price measure, which excludes food and fuel, increased 1.7 percent from September 2015. Inflation hasn't reached the Fed's 2 percent goal since 2012.

The Fed's rate-setting committee meets on Nov. 1-2, and investors see a slim chance for a rate move this week, with a higher probability for December.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net. To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle