U.S. consumer spending accelerated more than anticipated in September, while the Federal Reserve's favored inflation measure remained stable on an annual basis, as revealed by government data. Personal consumption expenditures growth surged to 0.5% last month, up from 0.3% in August, according to the Bureau of Economic Analysis report.
This latest figure surpassed the consensus expectation from Bloomberg analysts, who had forecasted a 0.4% increase. Spending on goods rebounded, achieving a 0.5% increase in September compared to a 0.2% decline the previous month, as both durable and nondurable goods returned to positive territory.
Meanwhile, the growth in services spending remained unchanged at 0.5% on a monthly basis. "Today's monthly income and spending data indicated that consumers concluded the third quarter on a solid note," said Ksenia Bushmeneva, an economist at TD Economics. "There are several factors that may have contributed to consumers showing more momentum than previously expected, including a significant boost to personal income in the first half of 2024 and a substantial cushion of savings." The annual headline PCE price index moderated to 2.1% last month, aligning with market forecasts, down from 2.3% in August.
Month-to-month, inflation increased to 0.2% in September, compared to a 0.1% rise the month before, also meeting market expectations. The Federal Reserve’s preferred core measure, which excludes food and energy costs, maintained a steady rate of 2.7% annually in September, exceeding the consensus projection for a 2.6% gain.
Sequentially, the core measure rose to 0.3% from 0.2%, matching analysts' predictions. BMO Capital Markets Senior Economist Sal Guatieri noted, "The continued strength in consumer spending indicates an upside risk to fourth-quarter growth estimates, making another 50-basis-point rate cut from the Federal Reserve less likely next week.
However, as headline inflation approaches the target and employment costs stabilize, a 25-basis-point move remains a strong consideration." The Federal Reserve's monetary policy committee is set to convene next week, with an interest rate decision scheduled for Nov. 7. Market expectations lean towards a 25 basis points reduction in interest rates, as indicated by the CME FedWatch tool..