Economic Report: U.S. consumers dipped into savings to keep spending in September

The numbers: U.S. consumer spending rose 0.6 in September, the Commerce Department said Friday. The gain was in-line with forecasts of economists surveyed by The Wall Street Journal.

Personal income slumped 1% in September after a 0.2% gain in the prior month. Economists were looking for a 0.4% decline.

As a result, the personal savings rate fell to 7.5% from 9.2% in the prior month. That’s slightly below its pre-pandemic level.

Wages and salaries rose a solid 0.8% in September.

The 12-month increase in the PCE index, the Federal Reserve’s preferred inflation gauge, rose to 4.4% in September from 4.2% in the prior month. That’s well above the Fed’s 2% annual target rate.

The core PCE rate that strips out food and energy held steady at 3.6% on an annual basis.

Key details: The drop in personal income reflected the expiration of supplemental jobless benefits, economists said.

“Core” PCE was slightly firmer than expected, rising 0.2% in September after a 0.3% gain in the prior month.

Adjusted for inflation, real consumer spending rose 0.3% in September after a 0.6% gain in the prior month. Consumers spent more on health care and food. Spending on durable goods fell due to shortages at auto dealers.

Big picture: U.S. gross domestic product decelerated to a 2% growth rate in the third quarter. Economists are counting on higher consumer spending to power a rebound in the economy in the final three months of the year. At the moment, economists expect a rebound in growth in the fourth quarter, but expectations were also high for the third quarter but steadily declined as time went on.

The financial cushion built up by consumers during the pandemic is being eroded, as households have to pay more for goods and services as a result of higher inflation. The savings rate averaged 7.6% in 2019.

What are they saying: “The 0.3% rise in real personal spending in September is consistent with consumption growth remaining muted going into the fourth quarter, as shortages and surging prices remain a drag,” said Andrew Hunter, senior U.S. economist at Capital Economics.

Market reaction: Stocks


opened lower on Friday after disappointing results from Amazon and Apple.

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