U.S. Consumer Spending Rose in September -- Update

By Sarah Chaney and Harriet TorryFeaturesDow Jones Newswires

Consumer spending picked up sharply in September, positioning American households to propel economic growth heading into the final quarter of the year.

Personal consumption expenditures, a measure of household spending on everything from washing machines to haircuts, increased a seasonally adjusted 1.0% in September from the prior month, the Commerce Department said Monday. The increase marked the largest month-over-month gain in eight years.

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Consumer spending was strong across the board, with durable goods orders -- or long-lasting products like cars and refrigerators -- rising a solid 3.2% in September. Consumers also picked up spending on nondurable goods, or items not intended to last more than three years like food and clothing, last month. Overall, consumer spending, which accounts for about two-thirds of U.S. economic output, was strong in the third quarter, rising at a solid 2.4% pace, the Commerce Department reported Friday.

The September spending gain comes alongside high consumer confidence levels, boosted by low unemployment, low inflation and a booming stock market. But soaring sentiment isn't the only factor driving spending. The Commerce Department said that even though the agency is unable to quantify the recent storms' impact on personal-income figures, the August and September estimates of personal income reflect the effects of Hurricanes Harvey and Irma, which shut down parts of Texas and Florida, and have propelled rebuilding efforts.

"Heading into the holiday season, it is a good sign that sentiment is high," said Satyam Panday, senior U.S. economist at S&P Global Ratings. "At the same time...there was lots of damage done to lots of homes, so some of the personal expenditure has to go to reconstruction as well."

Paul Ashworth of Capital Economics attributes the surge in consumption to a 14.7% monthly increase in spending on new motor vehicles brought about by the replacement of vehicles destroyed in the wake of the hurricanes. Energy prices also spiked as a result of storm activity.

"Although nominal consumption was robust, the spike in prices did eat into households' purchasing power," Mr. Ashworth wrote in a note to clients.

Real disposable incomes were unchanged in September, and the personal-saving rate was 3.1% in September, down from 3.6% the prior month and the lowest rate since December 2007.

Personal income, a measure that includes wages and government assistance, climbed 0.4% from the prior month.

Monday's report also showed the Federal Reserve's preferred measure of inflation, the price index for personal consumption expenditures, increased 0.4% in September from the prior month. Excluding the often-volatile categories of food and energy, so-called core prices were up only 0.1% in September.

Overall inflation rose 1.6% in September from a year earlier, rising from a 1.4% year-over-year increase in August. From a year earlier, core prices remained muted in September, growing 1.3% on an annual basis.

The Fed targets a 2% annual inflation rate. The price index slightly exceeded that level in February for the first time in nearly five years, but has since settled lower. The Federal Reserve meets this week and will release a policy statement Wednesday at 2 p.m. The central bank isn't expected to move on interest rates but could offer clues about a possible rate increase at its meeting in December.

Write to Sarah Chaney at sarah.chaney@wsj.com and Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

October 30, 2017 10:42 ET (14:42 GMT)