Economic Report: Consumer spending softens in August while inflation rises

Consumer spending was the weakest in August in five months.

Consumers spending was barely changed in August as lower sales of new cars and trucks offset an increase in services such as education and health care.

The flat reading last month — the weakest since March — fell short of Wall Street expectations. Economists polled by MarketWatch had forecast a 0.2% gain.

If inflation is taken into account, spending actually fell slightly, the Commerce Department said Friday. The last time that happened was in January.

Consumer spending soared 4.3% in the spring, but economists had expected it would taper off a bit in the third quarter to more normal levels. Americans are still spending fast enough to keep the economy churning forward, however.

Incomes, meanwhile, grew more slowly last month. Personal income rose 0.2% in August, the smallest increase in seven months.

The pullback in spending and somewhat higher income boosted savings. The savings rate for the typical consumer climbed to 5.7% from 5.6% to mark a three-month high.

Inflation as measured by the PCE index rose 0.1% in August, Commerce said. The so-called core rate of inflation that strips out the volatile food and energy categories increased 0.2%.

The PCE index, the Federal Reserve’s preferred inflation barometer, increased 1% in the 12 months ended in August. That’s up from 0.8% in July. The annual rate of core inflation edged up to 1.7%.

Inflation is still running below the 2% target desired by the Federal Reserve, one reason the central bank has held off on raising interest rates. Still, the Fed is expected to boost a key lending rate before the end of the year.

In July, the increase in spending was raised to 0.4% from 0.3%.

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