U.S. consumer spending rose in September as Americans saved less to fund purchases amid weak income growth, which could cast doubts over the durability of the third-quarter's economic growth spurt.
The Commerce Department said consumer spending increased 0.6 percent, matching expectations, after an unrevised 0.2 percent gain in August. Spending accounts for about 70 percent of U.S. economic activity.
With income edging up 0.1 percent last month, spending was at the expense of savings, which dropped to an annual rate of $419.8 billion, the lowest level since August 2009, from $479.1 billion in August. The saving rate fell to 3.6 percent, the slowest since December 2007, from 4.1 percent in August.
Income fell 0.1 percent in August and economist had expected a 0.3 percent increase in September. Inflation-adjusted disposable income slipped 0.1 percent, declining for a third straight month.
Sturdy consumer spending contributed to gross domestic product growing at a 2.5 percent annual pace in the third quarter, the fastest rate in a year, after an anemic 1.3 percent rate in the second quarter.
But given that income is not driving spending, the economy could lose some of its new found momentum. Consumer spending grew at a 2.4 percent pace in the last quarter, the fastest in nearly a year.
Stubbornly high unemployment, characterized by a jobless rate that has been stuck above 9 percent for five consecutive months, is restraining income growth. Last month, wages and salaries rose 0.3 percent after dipping 0.1 percent in August.
But subsiding inflation pressures should offer households some relief. A price index for personal spending rose at a 0.2 percent rate last month, slowing from Augusts' 0.3 percent pace. In the 12 months through September, the PCE index was up 2.9 percent after rising by the same margin in August.
A core inflation measure, which strips out food and energy costs, was flat last month after increasing 0.2 percent in August. In the 12 months through September, core PCE rose 1.6 percent after increasing 1.7 percent in August.
The Federal Reserve would like this measure close to 2 percent. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)