The spending of American consumers slowed down sharply in the month of September, indicating a major shift from the summer spending patterns that saw customers make huge purchases. This was indicated by the results of the PCE price index, where the country’s consumer spending only registered a growth of 0.3% in September, compared with the previous three months, which recorded growths of 0.5% each. This slow growth, of course, occurred at a time when the inflation pressures persisted.
Figures for September highlight the pressure on prices
The Personal Consumption Expenditures inflation rate, the Fed’s favorite inflation measure, rose 0.3% monthly in September, pushing the annual inflation rate from 2.7% to 2.8%, the highest since April 2024, due to the rising level of gasoline prices and the rising price of food for the second consecutive month. The Core PCE inflation rate, which excludes the volatile components of food and energy, also rose 0.2% monthly, reducing the annual rate from 2.9% to 2.8%.
However, the data that was published on Friday came, for the most part, as expected, with inflation expectations meeting FactSet’s projections of a 0.2% monthly increase. However, the fact that the persisting 2.8% annual level of inflation continues to hang above the Fed’s target level of 2% is, of course, somewhat of a problem for the Fed’s monetary policies. However, Elizabeth Renter, a senior economist for NerdWallet, said that this data will not halt the Fed’s next quarter-point rate cut.
Fed maintains a reductionist approach amidst fears of inflation
The dual goals of the Federal Reserve, which include the attainment of price stability and the achievement of maximum employment, are applicable, despite the cooling of labor markets. The monetary authorities are still focusing on the promotion of employment, together with their management of inflation expectations, and the figures that will emerge on Friday will not affect their plan to ease their monetary policies. The cooling labor markets are more relevant than the issue of inflation, as indicated by economic analysts.
Consumer spending: Fundamentals weakened by affordability crisis
On an inflation-adjusted basis, consumer spending growth was flat for the month of September, and it also recorded the lowest level of consumer spending since the real level of consumer spending fell 0.1% in May. The fundamental forces that make it possible for consumers to continue purchasing are depicted by the fact that the inflation-adjusted consumer disposable income also rose by 0.1% for the month.
Gregory Daco, the chief economist for Parthenon EY, explained that: “A silent majority of consumer households finds itself increasingly squeezed by a two-year affordability problem and higher borrowing costs.”This is because households are not experiencing income growth, which means that the majority of the top median, median, and lower-income households are withdrawing from the savings pool and relying on credit for consumer spending.
Historical challenges for long-term financial viability
Figures for consumer sentiment, also provided by the University of Michigan, indicated a slight relief in the initial weeks of December, rising by 2.3 points to 53.3, although these levels are still among the lowest recorded in history. Americans, apparently, have shown concern about the costs that come along with rising prices, since consumer sentiment remains at historic low levels despite the usual festivity that should come along with the holiday season.
This slow spending throughout September may indicate that a shift is occurring within spending patterns, since Americans will need to adapt to the difficulties that inflation brings. Even with the holiday season that brings consumer optimism, it appears that the consumer will not avoid the difficulties that come with spending. It is a delicate position that the Fed is faced with, since it must promote growth, but it also must keep the inflation expectations that come with consumer spending.
