Economic Report: Consumer spending barely rises in August as Americans save more

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Bloomberg News/Landov

Consumer spending barely rose in August as Americans pocketed more of their earnings.

The numbers: Americans cut back on spending in August and saved more, but rising incomes suggest the dropoff is unlikely to last. A key measure of prices also showed no change in inflation.

Consumer spending rose 0.1% last month, the government said Friday, marking the smallest gain in six months. Economists polled by MarketWatch had predicted a 0.3% increase.

Incomes rose 0.4% for the fifth time in six months, but most of it ended up in savings.

The savings rate climbed to a healthy 8.1% from 7.8% in the prior month.

Inflationary pressures, meanwhile, barely changed in August. The Federal Reserve’s preferred PCE price gauge was flat, with the core rate excluding food and energy up a scant 0.1%.

Read: Consumer confidence sinks to 3-month low on trade worries, softer jobs market

What happened: Americans spent less last month on prepared foods, hotels and power.

Consumers might have pared spending after splurging in July, when Amazon held its massive Prime Day sale and rivals offered their own specials. Outlays rose a revised 0.5% in July.

Other Hurricane Dorian may also have crimped spending in August in parts of the Southeast. Another potential depressant was President Trump’s announcement he would rrais

Consumers did spend more on recreational goods in the last full month of summer.

The pace of inflation, meanwhile, showed little change. The increase in the PCE price gauge over the past 12 months was unchanged at 1.4%, well below the Fed’s 2% target.

The core rate, seen as a better measure of underlying inflationary trends, edged up to 1.8% from 1.7%.

Big picture: The U.S. economy has been carried this year by strong consumer spending. Rising incomes stemming from the best jobs market in decades have given Americans the confidence to keep buying new cars and trucks, go out to eat more, and splurge a bit on themselves.

The economy will be OK so long as they remains the case, but the trade war with China has put businesses on edge and contributed to a slowdown in hiring. Some companies are even cutting jobs for the first time in years.

While few economists predict a recession — thanks to consumers — the ongoing dispute with China has taken a shine off the economy. The Fed has cut interest rates twice in the past three months as a salve.

Market reaction: The Dow Jones Industrial Average DJIA, -0.30% and S&P 500 SPX, -0.24% were set to open mildly higher in Friday trades.

The 10-year Treasury yield TMUBMUSD10Y, +0.67% rose slightly to 1.72%. The yield has sunk from a seven-year high of 3.23% last October.

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