Personal Income Also Fails To Meet Forecasts
The Commerce Department released its report on estimated consumer spending in September, which rose 0.1 percent for the month. Personal income was up 0.1 percent, the smallest gain in four months. The median forecast of 76 economists polled by Bloomberg News was an increase of 0.2 percent for consumer spending and a 0.2 percent increase for incomes. The AP says the spending increase was the “smallest gain in eight months, a sign that shoppers grew cautious at the end of the third quarter.” However, falling gasoline prices proved to be a drag on spending, and consumers bought automobiles and other large manufactured products. BMO Capital Markets economist Jennifer Lee said, “Consumer spending is still healthy but it slowed as the third quarter came to an end.” Analysts suggested that US consumers, who account for 70 percent of economic activity, retrenched in the wake of slower global economic growth and financial market turmoil, and that wage growth would be key to strong holiday shopping. Amherst Pierpont Securities LLC economist Stephen Stanley told Bloomberg, “People probably took their foot off the gas a little bit in September in the wake of some of the volatility. … We had two pretty strong months in real terms in July and August, so for me a bit of a slowdown in September is not too worrisome.”
What Happens Next
Economists suggest that the slowdown in consumer spending, combined with other economic reports that show inflation remains weak, may prompt the Federal Reserve to hold off on raising benchmark interest rates. FTN Financial economist Jay Morelock told Reuters, “It will be difficult for the Fed to justify a rate hike at a time when income, consumption, and inflation are trending lower, leaving a December rate hike less likely than prior to the data.”
What This Means For Small Business
The latest consumer spending report clouds what had been an optimistic outlook for the holiday shopping season, which is key for many small businesses. In addition, the report creates some uncertainty about the outlook for the Federal Reserve’s interest rate policy. Still, analysts suggest the slowdown in spending growth is temporary.
Additional Reading
CNBC and the Wall Street Journal also report on the consumer spending numbers.
Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.
