US wage growth remains gradual despite unemployment rate being near 49-year low

The Commerce Department said on Monday consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 per cent last month as households bought more motor vehicles and spent more on health care.

U.S. consumer spending rose for a seventh straight month in September, but income recorded its smallest gain in more than a year amid moderate wage growth, suggesting the current pace of spending was unlikely to be sustained.

The Commerce Department said on Monday consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 per cent last month as households bought more motor vehicles and spent more on health care.

Data for August was revised up to show spending advancing 0.5 per cent instead of the previously reported 0.3 per cent gain.

Economists polled by Reuters had forecast consumer spending increasing 0.4 per cent in September. When adjusted for inflation, consumer spending rose 0.3 per cent. The so-called real consumer spending climbed 0.4 per cent in August.

The data was included in last Friday's third-quarter gross domestic product report, which showed consumer spending accelerating at a 4.0 per cent annualized rate, the fastest in nearly four years.

The economy grew at a 3.5 per cent rate in the third quarter, a slowdown from the April-June period's robust 4.2 per cent pace.

Prices of U.S. Treasuries were trading lower on Monday while U.S. stock index futures were higher. The dollar was slightly stronger against a basket of currencies.

SAVINGS FALL

September's rise in real consumer spending sets it on a solid growth path heading into the fourth quarter.

But the momentum is likely to slow. Personal income rose 0.2 per cent in September, the smallest increase since June 2017, after gaining 0.4 per cent in August. Wages rose 0.2 per cent after jumping 0.5 per cent in August.

Wage growth remains gradual despite the unemployment rate being near a 49-year low of 3.7 per cent. The saving rate fell to $975.7 billion last month, the lowest level since December 2017, from $1.0 trillion in August.

The moderation in income and savings comes amid signs that the stimulus from the Trump administration's $1.5 trillion tax cut package has peaked. In addition, the stock market sell-off is seen eroding household wealth.

In September, spending on goods surged 0.6 per cent. Consumers also spent more on sporting goods. Outlays on services gained 0.3 per cent, with spending on health care offsetting a decrease in spending at restaurants and on accommodation.

Prices continued to rise steadily in September. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2 per cent after being flat in August.

That left the year-on-year increase in the so-called core PCE price index at 2.0 per cent for a fifth straight month.

The core PCE index is the Federal Reserve's preferred inflation measure. It hit the U.S. central bank's 2 per cent inflation target in March for the first time since April 2012.

The Fed is expected to raise interest rates again in December despite tightening financial market conditions brought about by the stock market drop and a rise in U.S. Treasury yields. The central bank raised rates in September for the third time this year and removed a reference to monetary policy remaining "accommodative" from its policy statement.