10/30/2015

U.S. consumer spending in September recorded its smallest gain in eight months as personal income barely rose, suggesting some cooling in domestic demand after recent hefty increases. 

The Commerce Department data and another report from the Labor Department on Friday also showed weak inflationary pressures, which would argue against the Federal Reserve raising interest rates at the end of the year.

U.S. central bank policymakers this week put a rate hike in December on the table with a direct reference to their final meeting of the year. The Fed has kept benchmark overnight interest rates near zero since December 2008.

"Today's batch of data releases aren't going to convince the doves to vote for a December rate hike," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month after rising 0.4 percent rise in August. September's consumer spending data was included in Thursday's third-quarter gross domestic product report.

Consumer spending rose at a brisk 3.2 percent annual pace in the third quarter, helping to lift GDP growth to a 1.5 percent rate. Spending has increased at a rate of more than 3 percent in each of the last two quarters.

Growth in the third quarter was constrained by business efforts to whittle down an inventory bloat, a strong dollar and ongoing spending cuts by energy companies.

U.S. stock index futures rose after the data, while prices of longer-dated U.S. Treasuries edged up. The U.S. dollar gained against a basket of currencies.

When adjusted for inflation, consumer spending rose 0.2 percent in September after increasing 0.4 percent in August, suggesting consumption will continue to support the economy through the rest of the year.

Personal income ticked up 0.1 percent in September, the smallest rise since March, after increasing 0.4 percent in the prior month. With spending sluggish, inflation remained benign last month.

A price index for consumer spending slipped 0.1 percent, the first decline since January, after being flat in August. In the 12 months through September, the personal consumption expenditures (PCE) price index rose 0.2 percent, the smallest increase since April.

It increased 0.3 percent in August. Excluding food and energy, prices rose 0.1 percent for a fifth straight month. The so-called core PCE price index rose 1.3 percent in the 12 months through September after a similar gain in August.

Inflation has persistently run below the Fed's 2 percent target.

A separate report from the Labor Department showed the Employment Cost Index, the broadest measure of labor costs, increased 0.6 percent after a 0.2 percent gain in the second quarter.

In the 12 months through September, labor costs held steady at 2.0 percent, below the 3 percent threshold that economists say is needed to bring inflation closer to the Fed's target.

By Lucia Mutikani - Reuters (Editing by Paul Simao)