Consumers boosted their spending by 1 percent in September, the biggest gain in eight years. The surge was fueled by robust demand across sectors, especially autos in the wake of recent hurricanes.
The sharp jump in consumer spending was up from a tiny 0.1 percent gain in August and was the best showing since an increase of 1.3 percent in August 2009, the Commerce Department reported Monday. Income growth was also solid in September, rising by 0.4 percent as wages and salaries climbed.
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Consumer spending is closely monitored because it accounts for 70 percent of economic activity. The latest result suggests that Americans were feeling increasingly confident about the economy heading into the final quarter of the year.
That should support solid growth in the fourth quarter. The overall economy, as measured by the gross domestic product, grew at a solid 3 percent annual rate in the July-September quarter, despite the devastation from two hurricanes.
The big spending surge in September was led by a 14.7 percent increase in spending for new motor vehicles, as drivers began replacing the estimated more than 300,000 vehicles destroyed in the hurricanes. Spending on nondurable goods such as clothing and services such as utility payments was also strong.
"Consumers were not shy in September," said Eugenio Aleman, senior economist at Wells Fargo. "Every sector of consumption was booming."
Consumer confidence has been bolstered by a Wall Street rally, which has pushed stocks to new highs. Economists expect even stronger spending next year if Republicans are able to push their tax cut package through Congress, and the cuts are made retroactive to the start of 2018.
"Most households should get the benefit of a reduction in taxes early in the New Year, but we won't know what proportion of households will be net beneficiaries of the Republican's tax cuts until the details of the plan are released this Wednesday," said Paul Ashworth, chief U.S. economist for Capital Economics.
A key inflation gauge closely followed by the Federal Reserve showed consumer prices rose 1.6 percent in September compared to a year ago, up from readings of just 1.4 percent the past three months.
Fed officials, who have raised interest rates twice this year, will meet again on Tuesday and Wednesday. However, analysts expect them to defer a third rate hike in an effort to ensure that low inflation is rising and annual price gains are again moving toward the Fed's 2 percent target.
The 1.6 percent 12-month rise in prices was the strongest gain since a 1.7 percent increase in April. Core inflation, which excludes food and energy, remained stuck at an increase of 1.3 percent over the past 12 months, the same as August.
The 1 percent jump in consumer spending reflected a 3.2 percent advance in spending on durable goods such as autos. Auto sales were strong in September, posting the first monthly gain of the year. Analysts said sales were helped by purchases of replacement vehicles for cars damaged by the hurricanes that hit Texas and Florida.
Sales of non-durable goods such as clothing posted a 1.5 percent rise, while spending on services such as utility bills and rent rose 0.5 percent.
With spending so strong, the personal saving rate dropped to 3.1 percent of after-tax income, down from 3.6 percent in August.