US consumer spending accelerated more than expected in September, while the Federal Reserve's preferred inflation metric held steady at the annual level, government data showed Thursday. Personal consumption expenditures growth increased to 0.5% last month from 0.3% in August, the Bureau of Economic Analysis said in a report.
The latest print came in above the Bloomberg-polled consensus for a 0.4% increase. Goods spending rebounded to a 0.5% gain in September versus a 0.2% decline the month prior, as durables and nondurables each returned to positive territory. Services spending growth remained unchanged at 0.5% on a monthly basis. "Today's monthly income and spending data showed that consumers have ended (the third quarter) on a strong note," TD Economics Economist Ksenia Bushmeneva said.
"There are several reasons consumers may have more momentum than previously anticipated, such as a notable upgrade to personal income in (the first half of 2024) and a larger cushion of savings." The annual headline PCE price index decelerated to 2.1% last month, in line with the Street's forecast, from 2.3% in August.
On a sequential basis, inflation rose to 0.2% in September from a 0.1% increase the month before, meeting the market estimate. The Fed's preferred core measure, which excludes food and energy, held steady at 2.7% annually in September, but topped the consensus view for a 2.6% gain. Sequentially, the core measure advanced to 0.3% from 0.2%, in line with analysts' expectation. "The ongoing strength in consumer spending suggests upside risk to (fourth-quarter) growth estimates, ruling out another (50-basis-point) rate chop from the (Federal Reserve) next week," BMO Capital Markets Senior Economist Sal Guatieri said.
"However, with headline inflation nearly back to the target and employment costs moderating, a (25-basis-point) move remains firmly on the table." The Fed's monetary policy committee is scheduled to meet next week, with a decision on interest rates due on Nov. 7. Markets widely expect the central bank to cut interest rates by 25 basis points, according to the CME FedWatch tool..