Strong Q3 consumer spending shows signs of stalling
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The economy entered the fall with considerable momentum. But a snapshot from September suggests that households ended the third quarter squeezed by higher prices and weaker purchasing power.
Driving the news: Consumer spending was strong across the third quarter but showed signs of stalling in September in data released simultaneously with the GDP report Thursday morning.
By the numbers: Personal consumption expenditures rose 0.5% in September, slowing from August's 0.9% gain. But after accounting for a 0.5% rise in prices, September spending was flat after rising by 0.5% the prior month.
- Inflation-adjusted disposable income fell 0.3%, the steepest monthly decline since April.
- As spending outpaced income growth and inflation eroded purchasing power, the personal saving rate slipped to 3.8%, its lowest since October 2022.
The intrigue: Inflation cooled over the third quarter, though price pressures were stubborn at the end of the three-month period.
- The core PCE price index rose at a 2.5% annualized rate last quarter, down from 3.3% in the second quarter. Headline inflation slowed to 2.1% from 5%.
- Headline prices rose 0.5%, up from 0.3% in August. Annual inflation accelerated to 3.6% from 3.4%, while core inflation ticked up to 3.1% from 3%.
The bottom line: Together, the GDP and PCE reports capture a central tension in the U.S. economy ahead of next week's midterm elections.
- Consumer spending is powering robust growth, even as households contend with higher prices and declining purchasing power while saving a smaller share of their income.
