US Consumer Spending Surges 0.9% in August as Inflation Cools

Key points

• Consumer spending increased 0.9% from July to August, a significant rise from the 0.1% growth seen in July.
• The US economy expanded at a 2.2% annual pace in the July-September quarter, with analysts expecting growth to accelerate to 3% in the current quarter.
• The PCE price index, the Federal Reserve's preferred inflation gauge, rose 3.4% year-over-year in August, below expectations, while core PCE increased 3.0%.
• After-tax incomes, adjusted for inflation, remained unchanged in August after rising 0.3% in July.
• JPMorgan suggests wealthier Americans are driving spending by cashing in stock market gains, while others may be taking on more debt.

Background

Recent data showed US consumers maintaining strong spending despite high 10-year Treasury yields and inflation concerns stemming from the US-Iran conflict. While August CPI data showed a 0.4% monthly increase driven by gasoline prices, the subsequent PCE report indicated a cooling trend in inflation, reducing the likelihood of a Federal Reserve rate hike in October and shifting expectations toward December.

Why it matters

Robust consumer spending and cooling inflation suggest the US economy is resilient, potentially allowing the Federal Reserve to pause rate hikes. This could stabilize financial markets and support continued economic growth, though rising debt and stock market dependence pose risks for future consumer behavior.

What to watch

Analysts expect GDP growth to accelerate to 3% in the current quarter. The Federal Reserve is likely to monitor consumer spending and inflation trends closely, with rate decisions potentially delayed until December if inflation continues to cool.