US consumer spending beats expectations in August

Despite global slowdown, US consumers increase their spending, contributing positively to economic growth, setting solid ground for US Federal Reserve’s potential rate hike within this year

Photo by: AP
Photo by: AP

Customers check out at a Wal-Mart Neighborhood Market in Bentonville, Arkansas, June 4, 2015

US consumer spending grew briskly in August and a key measure of inflation firmed a bit, signs of strength in America's domestic economy that could lead the Federal Reserve to tighten interest rates despite weakness abroad.

The Commerce Department said on Monday consumer spending increased 0.4 percent after an upwardly revised 0.4 percent rise in July.

The data suggests the strong consumer spending that bolstered the economy in the second quarter carried over into the third.

Consumer spending, which accounts for more than two-thirds of US economic activity, was previously reported to have gained 0.3 percent in July.

Economists polled by Reuters had forecast consumer spending rising 0.3 percent last month.

It was the latest report indicating momentum in the economy as it confronted recent global financial markets turbulence, sparked by concerns over a slowing Chinese economy, which pushed the Fed to hold off hiking rates earlier in September.

The economy grew at a robust 3.9 percent annual rate in the second quarter.

Last month, spending on long-lasting goods such as automobiles increased 0.9 percent. Outlays on services like utilities rose 0.5 percent. When adjusted for inflation, consumer spending rose 0.4 percent.

Personal income increased 0.3 percent in August.

Overall inflation remained muted, reflecting low oil prices. Inflation, which has persistently run below the Fed's 2 percent target in annual terms, rose just 0.3 percent in August from the same month a year earlier.

However, prices were up 1.3 percent when excluding food and energy, a key metric used by the Fed to gauge the trend rate of inflation. This so-called core PCE price index has been holding around 1.3 percent through 2015.