US consumer spending up a modest 0.6% with inflation high

WASHINGTON — American consumers slowed their spending to a gain of just 0.6% in September, a cautionary sign for an economy that remains in the grip of a pandemic and a prolonged bout of high inflation.

At the same time, a key inflation barometer that is closely followed by the Federal Reserve surged 4.4% last month from a year earlier. Sharply rising prices, in part a result of supply shortages, have imposed a growing burden on American households. For months, annual inflation has remained far above the modest annual rates of 2% or less that prevailed before the pandemic recession.

Today’s report from the Commerce Department also showed that personal incomes, which provide the fuel for spending fell 1% in September the biggest decline in four months. Wages have been rising in many sectors of the job market as employers struggle to find enough workers to fill jobs. But the expiration of emergency federal programs has subtracted from the nation’s overall income.

The economy, while growing, is being hampered by COVID-19 cases and persistent supply shortages. On Thursday, the government estimated that economy slowed sharply to a 2% annual growth rate in the July-September period, the weakest quarterly expansion since the recovery from the pandemic recession began last year.

For the July-September quarter as a whole, consumer spending, which fuels about 70% of overall economic activity, weakened to an annual growth rate of just 1.6%. That was down significantly from a 12% surge in consumer spending in the previous quarter.

Economists remain hopeful for a bounce-back in the current quarter, with confirmed COVID cases declining, vaccination rates rising, businesses investing and more Americans venturing out to spend money. Many analysts think GDP will rebound at a solid annual growth rate of at least 4% this quarter.

In Friday’s report on consumer spending last month, the government said that purchases of durable goods such as autos fell 0.2%, while spending on services rose 0.9%. More Americans have been shifting their spending away from the physical goods that many purchased while hunkered down at home to spending on services, from haircuts to airline tickets to restaurant meals. In some cases, a shortage of products, related to bottlenecked supply chains, likely held a lid on goods purchases.

Most economists expect consumer spending to strengthen as supply problems ease. The resilience of such spending has fueled businesses’ need for workers, and in many cases they can’t find enough. In September, employers added just 194,000 jobs, a second straight tepid gain and a sign that the pandemic had a grip on the economy with many companies struggling to attract applicants to fill jobs.

Many people who lost jobs in the pandemic have yet to start looking again. Supply chain bottlenecks have also worsened, slowing factories, restraining homebuilders and emptying some store shelves.