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The numbers: Consumer spending rose a seemingly solid 0.4% in August, but the increase was exaggerated by higher gas prices that are pinching the budgets of U.S. households.
Analysts polled by the Wall Street Journal had forecast a 0.4% gain.
Spending had jumped 0.9% in July, when Amazon
AMZN,
held its annual Prime Day sale. The sales event probably pulled forward some spending that normally would have taken place in August.
Consumer spending is the main engine of the U.S. economy. The rate of household spending slowed to a sluggish 0.8% annual pace in the second quarter from 3.8% in the first three months of the year. But spending picked back up again during the summer.
Incomes advanced 0.4% in August, the government said Friday.
Key details: Americans spent more last month on gas, lubricants and other energy-related products after oil prices rose.
They also devoted more of their budgets to necessities such as housing, utilities and medical care. The cost of shelter and medical care are on the upswing again.
Adjusted for inflation, consumer spending barely rose last month.
The U.S. savings rate, meanwhile, fell to 3.9% from 4.1%. The savings rate has fallen since the end of the pandemic, a sign that households have less financial cushion.
The so-called PCE price index, the Federal Reserve’s favorite inflation barometer, rose a sharp 0.4% in August largely because of higher gas prices.
Big picture: There are growing signs that consumers are feeling the stress of higher interest rates put in place by the Federal Reserve to quench inflation. Home sales have tumbled and it’s more expensive to buy big-ticket items such as cars.
Incomes are rising faster than inflation for the first time in a few years, however, and the unemployment rate remains extremely low at 3.8%. The strong labor market is helping to extend the current economic expansion.
Looking ahead: “Although consumer spending growth remains solid, it will slow in the months ahead as job and wage gains slow and high interest rates and inflation remain drags,” said chief economist Gus Faucher of PNC Financial Services.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
rose in Friday trades.
