A key gauge of US business investment unexpectedly fell in August and consumer spending slowed, signaling the US economy cooled in the third quarter and complicating the outlook for the Federal Reserve. Personal consumption expenditures, or consumer spending, which accounts for the bulk of US gross domestic output, climbed just 0.1 per cent month on month – its weakest showing in six months, the Department of Commerce said on Friday.
That missed economists’ expectations for a 0.3 percent increase and cooled sharply from the downwardly revised 0.5 increase recorded in July. Spending slowed even as personal incomes rose 0.4 percent, in line with expectations. Consumer spending has been the main engine of economic growth. Even as GDP expanded at a slower 2 percent in the second quarter, it was the American consumer that helped spur the economy, with the strongest spending growth in four-and-a-half years.
However, the latest batch of data suggests the longest US expansion since 1854 continued to lose momentum in the penultimate quarter of the year as Americans tightened their purse strings. Paul Ashworth, an economist at Capital Economics, said: “The August personal spending figures, which incorporated downward revisions to earlier months, suggest that third-quarter real consumption growth was 2.6 percent annualized, well below the
3.5 percent gain we previously anticipated. “As a result, we now estimate that third-quarter GDP growth was 1.5 percent rather than 2 .0 percent.”