US Consumer spending picks up speed in August

Personal income rose 0.3% in August, slightly below market expectations for a 0.4% gain. After removing inflation and taxes, real disposable personal income was also up 0.3% on the month.

"Personal consumption rose by 0.4% in nominal terms, beating the consensus forecast for 0.3% rise. In real terms spending was also up 0.4% accelerating from an upwardly revised 0.3% July reading", says TD Economics.

By component, real spending on durable goods led the way, rising by 1.2%. Spending on non-durables rose by 0.6%, while services spending were up 0.3%.The personal saving rate edged down slightly to 4.6% from 4.7% in July.

Price growth was flat on the month, and the year-over-year headline PCE inflation rate remained unchanged at 0.3%. Core PCE prices (excluding food & energy) rose 0.1% (month-over-month), bringing the year-over-year rate to 1.3% from 1.2% in July.

Consumers continue to drive the economic recovery. Financial volatility picked up in August, but this appears to have done little to dent consumer sentiment and spending. The gains in August were broad-based across spending categories. For the quarter, real PCE is on track to grow by 3.3% (annualized).

The decline in energy prices continues to deliver strong gains in purchasing power - real disposable income has risen by 3.7% (annualized) over the three months ending in August, and with the saving rate holding relatively steady, this is translating into robust spending.

"This data provides further evidence that domestic spending momentum has continued into the third quarter, supporting our view that the American economy is able to navigate global headwinds and will continue to deliver above-trend economic growth. While inflation remains well under target, today's report offers some evidence that it will gradually move up towards 2.0% - precisely what the Fed is looking for in order to begin the normalization process", added TD Economics.