A modest rise in September spending signals cooling demand as households face higher prices and weaker job gains.
By yourNEWS Media Newsroom
U.S. consumer spending rose slightly in September, suggesting the economy lost steam heading into the fourth quarter as Americans grappled with higher prices and a slowing labor market.
The Commerce Department’s Bureau of Economic Analysis reported Friday that consumer spending—responsible for more than two-thirds of U.S. economic activity—ticked up 0.3% in September, following a downwardly revised 0.5% gain in August. Economists surveyed by Reuters had forecast a similar increase. The report was delayed by a record 43-day government shutdown.
The data marks a shift from three months of stronger gains earlier in the year, when wealthier households drove spending amid a stock market surge. Economists said those higher-income consumers had largely offset weaker demand among middle- and lower-income Americans, who continue to feel the strain of a stagnant job market and higher costs of living.
Analysts also noted that President Donald Trump’s broad tariff program—aimed at reducing reliance on foreign imports—has contributed to uneven effects across the economy. While some businesses absorbed the costs or drew from pre-tariff inventories, others passed on the price increases, creating what economists have described as a “K-shaped” recovery marked by divergent outcomes between income groups.
Goldman Sachs economists warned this week that tepid job growth and cuts to social assistance programs, including Medicaid and Supplemental Nutrition Assistance Program benefits, will likely dampen low-income consumer spending into 2026.
Despite the September slowdown, overall consumption likely remained strong enough to sustain growth through the third quarter. The Atlanta Federal Reserve estimates gross domestic product expanded at a 3.8% annualized rate from July through September—matching the second quarter’s pace. The BEA is expected to release its delayed third-quarter GDP estimate on December 23.
Meanwhile, inflation pressures persisted but showed signs of stability. The Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve’s preferred gauge—rose 0.3% in September, the same pace as in August. Over the past year, the PCE index advanced 2.8%, up slightly from 2.7% the month before.
Core PCE, which excludes volatile food and energy prices, increased 0.2% for the month and 2.8% year over year—just below August’s 2.9% reading. The Fed targets 2% annual inflation, suggesting price growth remains above its comfort zone but is gradually easing.
Economists said the September inflation data, delayed and largely outdated, is unlikely to influence the Federal Reserve’s upcoming policy meeting. Financial markets have already priced in a 25-basis-point rate cut, according to CME Group’s FedWatch tool.
The combination of moderating spending, steady inflation, and a cooling labor market underscores an economy shifting from rapid expansion toward slower, more uneven growth—a balance the Fed will continue to monitor closely as it weighs how much support the recovery still needs.
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