U.S. Consumer Spending Soft in August

By Ben Leubsdorf and Sharon Nunn Features Dow Jones Newswires

Consumer spending was soft in August, while a key measure of U.S. inflation continued to show modest price growth across the economy.

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Personal consumption expenditures, a broad measure of household outlays on everything from groceries to doctor visits, rose a seasonally adjusted 0.1% in August from a month earlier, the Commerce Department said Friday.

Personal income from sources like paychecks, investments and government benefits was up 0.2% in August.

Both readings matched expectations among economists surveyed by The Wall Street Journal.

Adjusted for inflation, consumer spending fell 0.1% in August from the prior month. That was the first decline in price-adjusted outlays since January.

Consumer spending accounts for more than two-thirds of total U.S. economic output, and a pickup in outlays helped boost overall growth this spring. But economists think the powerful hurricanes that hit the U.S. in August and September could depress economic activity during the third quarter, which ends Saturday. Growth would likely rebound in subsequent quarters as rebuilding efforts take shape.

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As of Thursday, forecasting firm Macroeconomic Advisers projected a 2.7% annual growth rate for gross domestic product in the third quarter, down slightly from the second quarter's 3.1% GDP growth rate. The Federal Reserve Bank of Atlanta's GDPNow model this week predicted third-quarter growth at a more modest 2.1% rate.

The Commerce Department said the August figures for income and spending reflected Hurricane Harvey, which hit Texas and Louisiana in late August, but that the agency couldn't quantify the storm's effects.

The personal-saving rate in August was 3.6%, steady from the prior month but down over the past few years.

Friday's report also showed the Federal Reserve's preferred measure of U.S. inflation remained subdued in August, highlighting the central bank's conundrum over soft price growth even as it plans to continue raising interest rates at a gradual pace.

The personal consumption expenditures price index was up 0.2% in August from the prior month and rose 1.4% on the year. Gasoline prices spiked as Hurricane Harvey disrupted fuel shipments and refineries along the Gulf Coast in late August; excluding often-volatile food and energy prices, so-called core prices were up 0.1% on the month and rose just 1.3% on the year.

The Fed has struggled for years to boost inflation to its 2% annual target. Price gains have been subdued in recent months even with the unemployment rate hovering below 4.5%, surprising central-bank officials who had expected price and wage pressures would build in response to a tightening labor market.

"My colleagues and I currently think that this year's low inflation is probably temporary, so we continue to anticipate that inflation is likely to stabilize around 2% over the next few years," Fed Chairwoman Janet Yellen said Tuesday during a speech in Cleveland.

"But," she added, "our understanding of the forces driving inflation is imperfect, and we recognize that something more persistent may be responsible for the current undershooting of our longer-run objective."

Fed officials raised short-term interest rates twice this year, in March and June, and this month announced they would begin to shrink the central bank's $4.5 trillion portfolio of bonds and other assets.

Policy makers penciled in one more quarter-percentage-point rate increase by the end of 2017, which analysts have predicted will come at the Fed's Dec. 12-13 policy meeting.

A broad pickup in inflationary pressures would support the case for a rate increase, while a continued slump could make a rate move less likely. Ms. Yellen said this week that Fed officials "will monitor incoming data closely and stand ready to modify our views based on what we learn."

The Commerce Department's latest report on personal income and outlays can be accessed at: https://bea.gov/newsreleases/national/pi/pinewsrelease.htm

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com and Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

September 29, 2017 08:45 ET (12:45 GMT)