US personal consumption slows more than expected in August

Consumer spending was slightly lower than expected in August, alongside larger-than-expected increases in prices.

Personal incomes rose by 0.2% month-on-month in August, according to the Department of Commerce, as expected by economists, but nominal spending was flat.

Economists had forecast that personal consumption expenditures would rise by 0.2% in August when measured at current dollars.

In real terms, adjusted for inflation that is, consumption dipped by 0.1% over the month after a 0.3% increase in July.

"This is the first decline in real spending since January but it was always likely once the automakers reported the sharp
correction in sales, following their unsustainable strength in July. [...] With real after-tax income growth trending at 2.5%, faster spending growth requires the saving rate to fall; it stood at 5.7% in August, only marginally above the 5.5% average from 2013-15," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Offsetting last month's weak reading on consumer outlays, the previous month's increase was revised higher from an initially estimated rise of 0.3% month-on-month to 0.4%.

The price deflator for personal consumption expenditures accelerated in August, to a 1.0% year-on-year clip from 0.8% in the month before (consensus: 0.9%).

At the core level, the PCE price index advanced at a 1.7% pace (consensus: 1.7%), rising back to the cyclical peak seen in February 2016, up from the 1.6% clip seen in the month before.

Versus July, the personal saving rate edged higher by one tenth of a percentage point to 5.7%.

"The Fed expects thinks core PCE inflation won’t reach 2% until 2018; we think it will hit the target by the middle of next year," Shepherdson said.