Consumer spending stalled in September, inflation in line

US consumer spending stalled in September, suggesting Americans were already stretched going into the government shutdown in the face of stubborn inflation.

Consumer spending, adjusted for changes in prices, was little changed in September, according to Bureau of Economic Analysis data out Friday. That followed a downwardly revised 0.2% advance in August. The report was scheduled for release on Oct. 31 but was delayed by the government shutdown.

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The so-called core personal consumption expenditures price index, which excludes food and energy items, rose 0.2% from August, according to Bureau of Economic Analysis data out Friday. From the prior year, it was up 2.8%.

The pullback among consumers suggests the US economy's main growth engine was slowing before the longest-ever government shutdown started on Oct. 1. More recent data show that Black Friday sales were solid as shoppers searched for deals, but consumers are increasingly anxious about the job market and spending is largely being driven by wealthier households.

Separate data Friday showed consumer sentiment rose in early December for the first the first time in five months. The increase in the University of Michigan's index reflected more optimism about the outlook for personal finances as inflation expectations improved.

Fed officials have rarely been so divided, with some preferring to cut interest rates again next week to support a slowing labor market, while others are wary of stubborn inflation. 

The soft spending figure and moderate monthly advance in core inflation seen in this report, albeit dated, offer support for those calling for a rate reduction. Investors overwhelmingly expect officials to deliver another rate cut. 

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Following the report, the S&P 500 and Treasury yields remained higher. The BEA has yet to reschedule the October release, which was originally scheduled for Nov. 26.

The moderation in spending was in large part due to the biggest decline in goods outlays since May, according to BEA. That's because prices for merchandise surged 0.5% in the month, the most since the start of the year. Consumers saw higher prices for nondurable goods like gasoline, apparel and groceries.

Inflation-adjusted spending on motor vehicles and parts, clothing and footwear declined. A report last week also showed retail purchases, not adjusted for inflation, slowed down in September, and outright declined in categories like electronics, apparel and sporting goods.

Americans' anxiety has been evident in recent corporate earnings reports. The weaker labor market and strained household finances has put pressure on middle-income shoppers at Kroger Co., while those trends are pushing more Americans toward discount chains like Dollar General Corp. and Five Below Inc. Still, strong reports from companies like Victoria's Secret & Co. and Gap Inc. point to consumer resilience. 

Real disposable income barely rose for a second month. Wages and salaries, a metric not adjusted for inflation, climbed 0.4%, and income on assets — a key support for wealthier households — picked up. The saving rate was unchanged at 4.7%.

A closely watched metric of services inflation that excludes energy and housing decelerated.