US consumer spending increased marginally in September, suggesting a loss of momentum in the economy at the end of the third quarter as a lackluster labor market and rising cost of living curbed demand.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3% after a downwardly revised 0.5% gain in August, the Commerce Department's Bureau of Economic Analysis said today.
Economists polled by Reuters had forecast consumer spending advancing 0.3% after a previously reported 0.6% rise in August.
The report was delayed by a record 43-day government shutdown.
The slowdown in spending followed three months of solid gains in a row, attributed by economists to high-income households whose wealth was boosted by a stock market rally.
Labour market stagnation has impacted middle and lower-income households, who are also being squeezed by President Donald Trump's sweeping tariffs on imports, economists said, creating what they called a K-shaped economy.
Economists at Goldman Sachs in a note this week expected weak income growth because of tepid job growth and cuts to government assistance programmes like Medicaid and Supplemental Nutrition Assistance Program benefits, formerly known as food stamps, to weigh on low-income spending in 2026.
Despite the loss of momentum in September, consumer spending likely grew at a brisk pace in the third quarter, underpinning the overall economy.
The Atlanta Federal Reserve is estimating gross domestic product grew at a 3.8% annualised rate in the July-September quarter, which would match the second quarter's pace. The BEA will publish its delayed third-quarter GDP estimate on December 23.
Though tariffs have raised prices for consumers, the increase has been gradual as some businesses either absorbed the import duties or sold inventory accumulated before the taxes kicked in.
The Personal Consumption Expenditures (PCE) Price Index increased 0.3% in September after gaining 0.3% in August, the BEA said. In the 12 months to September, the PCE Price Index advanced 2.8% after rising 2.7% in August.
Excluding the volatile food and energy components, the PCE Price Index gained 0.2% after climbing 0.2% in August.
In the 12 months toSeptember, the so-called core inflation increased 2.8% after rising 2.9% in August. The Federal Reserve tracks the PCE price measures for its 2% inflation target.
The outdated PCE inflation likely will have no impact on the US Fed's interest rate decision next Wednesday. Financial markets have almost priced in a 25-basis-points rate cut.
