The numbers: Consumer spending rose 0.6% in September as Americans spent more on travel and new cars, signaling the economy is still expanding even as inflation and rising interest rates dim future growth prospects.
Spending rose a smaller but still solid 0.3% last month after adjusting for inflation, the government said. Incomes increased 0.4%.
Analysts polled by The Wall Street Journal had forecast a 0.4% increase in consumer spending, which drives about 70% of U.S. economic activity. It’s a key gauge of whether the economy is doing well or getting worse.
By and large, Americans have cut back on how much they spend after using up much of their pandemic benefits. And now high inflation, rising interest rates and growing talk of recession have made them more cautious.
Big picture: The economy is heading into rougher waters.
The Federal Reserve has jacked up interest rates to try to tame inflation, but higher borrowing costs also slow the economy. Consumers and businesses spend less, and if demand falls sharply enough, unemployment would rise and add to the misery.
Many economists and business leaders predict the U.S. will sink into a recession by next year. Only a steady increase in consumer spending is likely to prevent that.
Market reaction: The Dow Jones Industrial Average
and S&P 500
were set to open mixed in Friday trades.