U.S. Consumer Spending Moderation Hints at Economic Stability

The U.S. consumer spending saw a slightly smaller than expected increase in August, indicating moderate economic growth in Q3. Despite lower inflation over the past 3.5 years, strong wage gains and higher savings are bolstering consumer spending, with the U.S. central bank likely to opt for smaller rate cuts.

In August, U.S. consumer spending grew by a modest 0.2%, slightly below the anticipated 0.3%, hinting at a tempered economic growth for the third quarter. Inflation saw its smallest annual rise in over three-and-a-half years, according to the latest data from the Commerce Department.

While some moderation is evident, other indicators remain robust. The goods trade deficit narrowed significantly, suggesting sustained economic traction. Despite the dip in spending and inflation data, economists predict the Federal Reserve is unlikely to implement another hefty 50 basis points interest rate cut in November, leaning instead towards smaller reductions.

Consumer spending remains buoyant due to solid wage gains, even with a slowed labor market. This vitality is underscored by revised national accounts data showing stronger wages and a higher savings rate for Q2. Although consumer spending in certain goods sectors dipped, expenditures in services and nondurable goods rose, supporting the ongoing economic momentum.

(With inputs from agencies.)