Weak U.S. data clouds December rate hike possibility

Fri Oct 30, 2015 12:56pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer spending in September recorded its smallest gain in eight months as personal income barely rose, suggesting some cooling in domestic demand after recent hefty increases.

The Commerce Department data and another report from the Labor Department on Friday also showed weak inflationary pressures, which would argue against the Federal Reserve raising interest rates at the end of the year.

U.S. central bank policymakers this week put a rate hike in December on the table with a direct reference to their final meeting of the year. The Fed has kept benchmark overnight interest rates near zero since December 2008.

"It will be difficult for the Fed to justify a rate hike at a time when income, consumption, and inflation are trending lower, leaving a December rate hike less likely than prior to the data," said Jay Morelock, an economist at FTN Financial in New York.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month after rising 0.4 percent rise in August. September's consumer spending data was included in Thursday's third-quarter gross domestic product report.

Consumer spending rose at a brisk 3.2 percent annual pace in the third quarter, helping to lift GDP growth to a 1.5 percent rate. Consumption has increased at a rate of more than 3 percent in each of the last two quarters.

Third-quarter growth was constrained by business efforts to whittle down an inventory bloat, a strong dollar and ongoing spending cuts by energy companies.

Stocks on Wall Street were trading marginally lower, while prices for longer-dated U.S. government debt rose. The dollar fell against a basket of currencies.   Continued...

 
A customer looks at merchandise in a Best Buy store in Denver May 14, 2015.  REUTERS/Rick Wilking