American consumers boosted their spending by just 0.1% in August, the smallest gain in six months, even as their incomes rose at a solid pace.
Personal income increased 0.4%, up from a small gain in the previous month, the Commerce Department said Friday. A measure of inflation preferred by the Federal Reserve was flat, but excluding the volatile food and energy categories, core prices ticked up 0.1%.
The small increase in consumer spending was below most economists' forecasts, and spending in July was revised slightly lower. In addition, a separate Commerce Department report showed that orders for long-lasting manufactured goods , such as autos and appliances, rose just 0.2% in August. And a key category that measures business investment fell, a sign that companies remain reluctant to invest in new equipment or to expand.
The disappointing data on consumer spending and business investment led many economists to slash their estimates for growth in the July-September quarter. Oxford Economics cut its forecast from an annual rate of 1.8% growth to just 1.3%. Economists at Morgan Stanley lowered theirs to 1.5% from 2.1%. The Fed's preferred inflation gauge climbed just 1.4% in August compared with a year earlier, below its 2% target. The Fed aims to have some inflation as a way of avoiding deflation, a destabilizing fall in prices and wages. Yet inflation has mostly been below that level since the target was adopted in 2012.
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