US consumer spending rises above expectations in August

US consumer spending, which accounts for more than two-thirds of economic activity, rose slightly above expectations in August, adding to signals that the economy stands on solid ground.

Consumer spending increased by 0.6% last month, up from 0.5% rise in July, and slightly above 0.5% consensus.

Spending has continued to strengthen in the second quarter, driven by high-income households as a robust stock market and still-elevated home prices boost their wealth, which hit a record high in the second quarter, according to the report from Federal Reserve report, released earlier this month.

On the other hand, lower-income households continue to struggle, burdened by higher prices on goods from import tariffs, with more pressure expected from cuts to the federal government’s supplemental nutrition assistance program, commonly known as food stamps.

Strong consumer spending contributed to gross domestic product growth as data released on Thursday showed that US economy expanded by 3.8% in the second quarter, growing at the fastest pace in almost two years and strongly beating forecasts.

However, initial optimism is expected to fade as economists expect spending to slow considerably by the end of the year, undercut by higher prices, as inflation is still to show the full reaction to US import tariffs.

Separate reports showed that Personal Consumption Expenditures (PCE) Price Index (Fed’s preferred inflation gauge) increased 0.3% month on month in August after gaining 0.2% in July, while annualized PCE Price Index advanced 2.7% after advancing 2.6% in July.

So-called Core PCE Index, excluding the volatile food and energy components, was unchanged at 0.2% month on month in August. Annualized core PCE increased at the same pace at 2.9% last month.