US Consumer Spending Grows 0.2% in August; Headline PCE Index Slows

US consumer spending experienced slower growth in August than expected, while inflation pressures continued to ease.

Personal spending, which constitutes over two-thirds of economic activity, rose by 0.2% in August, down from an unchanged 0.5% increase in July, according to data from the Commerce Department’s Bureau of Economic Analysis. Economists had forecasted a rise of 0.3%, marking the slowest increase in seven months.

Household income growth also unexpectedly decelerated to 0.2% from 0.3% in July, with estimates predicting a slight increase to 0.4%.

Kathy Jones, chief fixed-income strategist, remarked on social media that these figures indicate a slowdown but not a significant drop. She noted that recent wage gains have bolstered consumer spending, even amid signs of weakness in the US labor market.

In addition, the personal consumption expenditures (PCE) price index, a key inflation gauge for Federal Reserve officials, increased by 0.1% month-on-month, falling short of expectations for a 0.2% rise consistent with July’s pace. On a year-over-year basis, the index moderated to 2.2%, lower than predictions of 2.3% and down from 2.5% in July.

When excluding volatile components such as food and energy, the core PCE price index also showed a monthly increase of 0.1%, while its annualized rate slightly rose to 2.7% from 2.6%.

This data follows the Fed’s decision to cut borrowing costs by a substantial 50 basis points last week, indicating further reductions could be in store later this year. Fed Chair Jerome Powell explained that the rationale for a significant cut, rather than a more standard quarter-point reduction, was to better support labor demand, suggesting a shift in the central bank’s primary focus away from combating inflation.