Personal consumption expenditure in the US rose by 0.4% month-on-month in August, maintaining the uninterrupted positive growth recorded since February. The figure compares with an upwardly revised 0.4% growth in July and beats expectations that it would come in at 0.3%. Personal income also continued to grow, rising by 0.3% month-on-month in August, though this was below estimates of 0.4% and down from July’s upwardly revised 0.5%.
Spending on durable goods was up by 1.2% but slightly down from July’s 1.3%. While spending on non-durable goods and on services improved from the previous month to increase by 0.6% and 0.3% respectively. US consumers have been benefiting from lower gasoline prices and rising incomes as employment maintains a healthy pace of growth. Wages and salaries continued to rise in August and were up by 0.5% month-on-month but this was down from July’s 0.6% rise.
The personal consumption expenditure (PCE) price index rose by 0.3% year-on-year, unchanged from the previous month and in-line with estimates. But the core PCE price index, which excludes food & energy, accelerated slightly to 1.3% year-on-year in August from 1.2% in July. The Fed puts greater significance on the PCE measure of inflation as it covers a wider range of household spending but August’s figure is unlikely to provide any clearer signal that inflation is on course to rise towards the 2% target in the near term.
However, the strong consumer spending, combined with a robust labor market appears to have convinced many within the FOMC that the US economy can withstand a rate rise. Several Fed policymakers have already voiced their preference of raising interest rates before the end of the year. New York Fed President William Dudley today added to the expectations of a 2015 rate hike. Speaking to the Wall Street Journal, Dudley said that the Fed will “probably raise rates later this year”. He said the factors holding down US inflation such as falling commodity prices and the stronger dollar are expected to be temporary.
The dollar initially climbed after the data, moving higher against the euro and the yen at 1.1146 dollars per euro and 120.33 yen respectively. But the greenback soon reversed course on risk off sentiment dropping back below 120 yen at 119.87 and the euro recovering to 1.1176 dollars in late European trading.