The latest report from the Federal Reserve shows that inflation rose by 2.8% in September compared to last year. This figure is part of the Personal Consumption Expenditures (PCE) index, which tracks what consumers spend on goods and services. The PCE accounts for about two-thirds of all consumer spending in the U.S., making it a key gauge of economic health.
Interestingly, the inflation reading was slightly below the expected 2.9%. Core inflation, which excludes food and energy prices, increased by 0.3% from the previous month. However, consumer spending remained flat in September, indicating some economic caution. When you take out volatile prices, spending only rose by 0.2% from August.
Analysts from Capital Economics noted a downward revision in August spending from 0.4% to 0.2%. In their view, a recent drop in motor vehicle sales might impact spending even more, suggesting that both consumer activity and GDP growth could slow down in the final quarter of the year.
Despite this, a recent surge in holiday spending post-Black Friday shows that consumers are still willing to spend. It will be interesting to see how this affects the Federal Reserve’s decision in their upcoming interest rate meeting in December. Many expect a rate cut, but opinions are divided among Fed officials about whether inflation or job market concerns are more pressing.
Inflation has been on the rise since April and currently sits at around 3%. Following the government shutdown, new PCE data for October and November is delayed, which adds uncertainty ahead of the Fed’s meeting. The next official jobs report will be released just days after their meeting, meaning it won’t directly influence their decision.
In a recent report from ADP, 32,000 jobs were lost in November, primarily affecting small businesses. Moreover, layoffs have reached their highest levels since the onset of the COVID-19 pandemic, according to data from Challenger, Gray & Christmas.
As we navigate these economic conditions, it can be helpful to reflect on how consumer behavior has shifted over time. For instance, during the last major recession, spending habits changed dramatically; people prioritized essentials and cut back on non-essentials. Today’s environment shows a mix of cautious spending amid inflation concerns, while holiday shopping pushes some consumers to open their wallets again.
For more insights on inflation trends, you can refer to the Bureau of Economic Analysis, which provides detailed economic statistics.
