U.S. Personal Spending Unexpectedly Dips 0.2% In September

(RTTNews) - Personal spending in the U.S. unexpectedly decreased in the month of September, according to a report released by the Commerce Department on Friday, with the drop in spending accompanied by weaker than expected personal income growth.

The Commerce Department said personal spending dipped by 0.2 percent in September after climbing by 0.5 percent in August.

The modest pullback came as a surprise to economists, who had expected personal spending to inch up by 0.1 percent.

Real spending, which is adjusted to remove price changes, also slipped 0.2 percent in September following a 0.5 percent increase in the previous month.

Additionally, the report said personal income edged up by 0.2 percent in September following a 0.3 percent increase in August. Economists had expected income to rise by another 0.3 percent.

Disposable personal income, or personal income less personal current taxes, inched up by a more modest 0.1 percent in September compared to a 0.3 percent increase in the previous month. Real disposable income was nearly unchanged.

The drop in spending combined with the increase in disposable income resulted in an uptick by the personal savings rate, which rose to 5.6 percent in September from 5.4 percent in August.

The Commerce Department also said its personal consumption expenditures price index inched up by 0.1 percent in September after dipping by 0.1 percent in August. The annual rate of growth was unchanged at 1.4 percent.

Core PCE prices, which exclude food and energy prices, edged up by 0.1 percent for the third straight month and were up 1.5 percent year-over-year.

Meanwhile, the Labor Department released a separate report showing that its employment cost index rose by 0.7 percent in the third quarter, matching the increase seen in the second quarter. Economists had expected the index to climb by 0.5 percent.

Wages and salaries, which make up about 70 percent of compensation costs, increased by 0.8 percent in the third quarter, while benefits rose by 0.6 percent.

Paul Diggle, an economist at Capital Economics, said, "This is the Fed's preferred measure of wage growth and sustained rises of this magnitude could tilt officials towards raising rates earlier next year rather than later."

"Strong job growth, rising wage growth and the fall in gasoline prices will all boost real incomes in the fourth quarter," he added. "This explains why we are not worried by the apparent loss in momentum in spending at the end of the third quarter."