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US consumer spending surged 1 per cent in September

FILE - In this Friday, Oct. 6, 2017, file photo, a buyer walks past a 2018 Sonata sitting amid an assortment of models on the showroom floor of a Hyundai dealership in the south Denver suburb of Littleton, Colo. On Monday, Oct. 30, 2017, the Commerce Department issues its September report on consumer spending, which accounts for roughly 70 percent of U.S. economic activity. (AP Photo/David Zalubowski, File)
October 30, 2017 - 8:36 AM

WASHINGTON - Consumers boosted their spending by 1 per cent in September, the biggest gain in eight years. The surge was fueled by robust demand across sectors, especially autos in the wake of recent hurricanes.

The sharp jump in consumer spending was up from a tiny 0.1 per cent gain in August and was the best showing since an increase of 1.3 per cent in August 2009, the Commerce Department reported Monday. Income growth was also solid in September, rising by 0.4 per cent as wages and salaries climbed.

Consumer spending is closely monitored because it accounts for 70 per cent of economic activity. The latest result suggests that Americans were feeling increasingly confident about the economy heading into the final quarter of the year.

That should support solid growth in the fourth quarter. The overall economy, as measured by the gross domestic product, grew at a solid 3 per cent annual rate in the July-September quarter, despite the devastation from two hurricanes.

The big spending surge in September was led by a 14.7 per cent increase in spending for new motor vehicles, as drivers began replacing the estimated more than 300,000 vehicles destroyed in the hurricanes. Spending on nondurable goods such as clothing and services such as utility payments was also strong.

"Consumers were not shy in September," said Eugenio Aleman, senior economist at Wells Fargo. "Every sector of consumption was booming."

Consumer confidence has been bolstered by a Wall Street rally, which has pushed stocks to new highs. Economists expect even stronger spending next year if Republicans are able to push their tax cut package through Congress, and the cuts are made retroactive to the start of 2018.

"Most households should get the benefit of a reduction in taxes early in the New Year, but we won't know what proportion of households will be net beneficiaries of the Republican's tax cuts until the details of the plan are released this Wednesday," said Paul Ashworth, chief U.S. economist for Capital Economics.

A key inflation gauge closely followed by the Federal Reserve showed consumer prices rose 1.6 per cent in September compared to a year ago, up from readings of just 1.4 per cent the past three months.

Fed officials, who have raised interest rates twice this year, will meet again on Tuesday and Wednesday. However, analysts expect them to defer a third rate hike in an effort to ensure that low inflation is rising and annual price gains are again moving toward the Fed's 2 per cent target.

The 1.6 per cent 12-month rise in prices was the strongest gain since a 1.7 per cent increase in April. Core inflation, which excludes food and energy, remained stuck at an increase of 1.3 per cent over the past 12 months, the same as August.

The 1 per cent jump in consumer spending reflected a 3.2 per cent advance in spending on durable goods such as autos. Auto sales were strong in September, posting the first monthly gain of the year. Analysts said sales were helped by purchases of replacement vehicles for cars damaged by the hurricanes that hit Texas and Florida.

Sales of non-durable goods such as clothing posted a 1.5 per cent rise, while spending on services such as utility bills and rent rose 0.5 per cent.

With spending so strong, the personal saving rate dropped to 3.1 per cent of after-tax income, down from 3.6 per cent in August.

News from © The Associated Press, 2017
The Associated Press

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