US personal spending highlights underlying health of economy

US August personal spending and personal income increased by 0.1% and 0.4%, respectively, during the month.

Commenting on the data, Daniel Casali, Chief Investment Strategist at Smith & Williamson Investment Management LLP, noted:

“Adjusted for price increases, US real personal spending rose a relatively healthy 2.3% from a year ago in August, up from a recent low of 1.7% year-on-year last December. Spending on services, which represents the lion share, rose at a steady pace. As a result, US consumer consumption remains robust, supported by faster private-sector wage and employment growth.”

“Underlying inflation, as measured by the core personal consumer expenditure deflator, which excludes volatile food and energy, rose 1.8% from a year ago in August, and is currently below the Fed’s inflation target of 2%. However, despite this low inflation backdrop, the Fed may not cut interest rates any further. This would be consistent with the message coming from Fed Chair Powell at the July FOMC that a rate cut should be viewed as a “mid-cycle adjustment” and is reflected in the median interest rate projection of the Federal Open Market Committee, which forecasts no further rate cuts this year or next.”

“In summary, the Commerce Department’s August personal income and spending report highlights the underlying health of the US economy and provides a favourable environment for equity investors.”

Source: Thomson Reuters Datastream, Smith & Williamson Investment Management LLP (data correct as at 27th September)

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