U.S. consumer spending increased more than expected in September, keeping it on a higher growth path heading into the fourth quarter, while monthly inflation was elevated.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 0.7% last month, the Commerce Department's Bureau of Economic Analysis reported Friday. Data for August was unrevised to show spending rising 0.4%.
While the robust rate of growth in consumer spending is likely unsustainable, the strong hand-off from the last quarter bodes well for spending in the fourth quarter amid growing challenges. Consumer spending is being driven by solid wage growth from a tight labor market, as well as households drawing down on excess savings accumulated during the COVID-19 pandemic.
Though credit card balances are rising, most economists do not believe they are at levels that could cause alarm, and argue that the labor market remains the key factor for spending. Excluding the volatile food and energy components, the PCE price index climbed 0.3%, after increasing 0.1% in the prior month. The so-called core PCE price index rose 3.7% on a year-on-year basis in September. That was the smallest gain in more than two years and followed a 3.8% increase in August.
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