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US consumer spending little changed

Washington - Consumer spending was little changed in August as income growth cooled, pointing to a softening in consumption after a run of strong gains.

The August result followed a 0.4% advance the prior month that was revised up, Commerce Department figures showed on Friday.

The median forecast in a Bloomberg survey called for a 0.1% increase. Income climbed 0.2%, while inflation-adjusted spending dropped for the first time since January.

The data are consistent with projections that consumer purchases will provide a smaller but respectable contribution to economic growth this quarter after the strongest quarterly advance since 2014. While robust employment and healthier finances are underpinning household spending, bigger pay checks would help provide an even larger boost.

"Consumer spending will continue to grind higher, though it’s unlikely to grow at the pace we saw last quarter," Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, said before the report.

"You need to see more than one month of slowing before it becomes a concern."

The gain in personal income was the weakest since a decline in February and reflected a slowdown in worker pay. Wages climbed 0.1% in August after 0.5% gains in the previous two months.

Disposable income or the money left over after taxes, softened to a 0.1% gain after adjusting for inflation. It rose 0.3% in the prior month.

Adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases fell 0.1% after climbing 0.3% the previous month.

The decline in August matched a January decrease that was the largest since the start of 2014.

Gross domestic product expanded at a 1.4% annualised rate from April through June, more than initially estimated, Commerce Department figures showed on Thursday. Household purchases jumped 4.3%, the most since 2014, while business investment stayed weak.

Forecasts for August consumer spending ranged from a 0.1% drop to a 0.4% increase, according to the Bloomberg survey. The previous month’s reading was initially reported as a gain of 0.3%.
The saving rate rose to 5.7% from 5.6%.

Purchases of durable goods, which include automobiles, decreased 1.3% after adjusting for inflation. That followed a 2.3% surge.

Household outlays on services rose 0.1% after adjusting for inflation, the weakest since a drop in March. The category includes tourism, legal help, health care, and personal care items such as haircuts, and is typically difficult for the government to estimate accurately.

The Federal Reserve’s preferred measure of inflation picked up, the report showed. The price gauge based on the personal consumption expenditures index increased 0.1% from the prior month and was up 1% from a year earlier.

The core price measure, which excludes food and fuel, rose 0.2% from the prior month and was up 1.7% from August 2015. Inflation hasn’t reached the Fed’s 2% goal since 2012.

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