US consumer spending rises in September as higher prices absorb the gain

US consumer spending rose sharply in September, but was flat after adjusting for higher prices. The report attributed much of the increase to households paying more for gasoline and transportation following a rise in energy costs.^[1]

The increase in dollars spent offers limited support for stronger business sales volumes. If household incomes fail to keep pace with gasoline and transportation bills, less money remains for clothing, dining out or leisure. That can make it harder for those businesses to sell more; fuel-dependent transport operators may also face profit pressure if they cannot raise prices enough to cover higher costs.^[1]

Impact

• Retail, restaurants and leisureRisk

  Larger gasoline and transportation bills may lead households to trim optional purchases. Even if these businesses report higher revenue, sales-volume growth is needed to demonstrate stronger demand.^[1]

• Fuel-dependent transport businessesRisk

  Higher energy costs increase the need for transport operators to recover costs through pricing. Protecting profits depends on customers accepting higher charges and transport demand holding up.^[1]

What to watch next

• The third-quarter Employment Cost Index and its wage component, due October 30, will offer evidence on pay growth and whether labor income can cushion pressure on household budgets.