Ahead of the Bell: US consumer spending

US consumer spending and income growth likely slowed in September

Associated Press
US consumer spending up moderate 0.3 percent in July

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In this Saturday, June 6, 2015 photo, a customer at left pays for produce with cash to a worker at a stand at the Atlanta Farmers Market. The Commerce Department releases personal income and spending for July on Friday, Aug. 28, 2015. (AP Photo/David Goldman)

WASHINGTON (AP) -- The Commerce Department releases its September report on consumer spending, which accounts for 70 percent of economic activity.

SPENDING SLOWER: The expectation is that consumer spending edged up by a modest 0.2 percent in September, according to a survey of economists by data firm FactSet.

THE BACKGROUND: In August, consumer spending increased 0.4 percent while income growth slowed to a gain of 0.3 percent. Economists expect income growth of 0.3 percent in September, reflecting a slowdown in job creation during the month. The economy created just 142,000 jobs in September.

Economists are forecasting that consumer spending will be a major support for the economy in the final three months of this year.

The government reported this week that the overall economy, as measured by the gross domestic product, slowed sharply in the summer to growth of just 1.5 percent, less than half the 3.9 percent rate seen in the April-June quarter. The major reason for the slowdown was an effort by businesses to trim unwanted stockpiles. That slashed 1.4 percentage points from growth.

Consumer spending remained strong in the third quarter, growing at a rate of 3.2 percent, just below the 3.6 percent growth rate seen in the second quarter.

Economists are forecasting that consumer spending will keep providing support in the fourth quarter, reflecting expected further gains in employment which will give households more income to spend. Consumers are also benefiting from declines in energy prices which give them more money to spend on other items.

Many economists are forecasting that the economy will grow around 2.5 percent in the fourth quarter, supported by expected further gains in consumer spending and less of a drag from cutbacks in stockpiling.

The Federal Reserve this week left its benchmark interest rate at a record low near zero, where it has been for the past seven years. However, in a statement, Fed policymakers said they would be looking at the progress made on its employment and inflation objectives in deciding whether to begin raising rates at its "next meeting."

It marked the first time in the Fed's seven years of low interest rates that officials have suggested that they could raise rates at the next meeting, which will occur Dec. 15-16.

One factor influencing that decision will be the performance of the Fed's favorite gauge of inflation, which is linked to consumer spending. By that measure, inflation has been running below the Fed's 2 percent target for more than three years.

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