Consumer spending rises 0.5% in September

(Oct. 31, 2016) -- The core PCE deflator inched up 0.1 percent in September to leave the year-over-year rate of growth unchanged at 1.7 percent. Our Take: The release of the September spending data provides the monthly detail behind the 2.1 percent gain in consumer spending in last Friday’s advance Q3 GDP report that, while somewhat smaller-than-expected and down from a 4.3 percent surge in Q2, nonetheless still represented a solid pace of growth. We expect overall GDP growth will slow somewhat in Q4 (our current monitoring is for a 2.3 percent gain, down from 2.9 percent in Q3) with both the net trade and inventory adds in Q3 not expected to be repeated. We expect household spending, however, will remain solid going forward, supported by strong labour markets (with shrinking labour market slack ultimately contributing to slower employment growth but offsetting strength in wages) and the still highly stimulative stance of monetary policy. Today’s reported rise in spending in September remains consistent with our view that consumer spending will post another strong gain (2.4 percent expected) in Q4.