U.S. consumer spending rose more than expected in September as households boosted purchases of motor vehicles and inflation increased steadily, which could bolster expectations of an interest rate hike from the Federal Reserve in December.
The Commerce Department said on Monday that consumer spending, which accounts for about 70 percent of U.S. economic activity, increased 0.5 percent after dipping 0.1 percent in August. Last month’s rise in consumer spending offered a fairly strong handoff from the third quarter to the current quarter.
The report was published ahead of the start of the Fed’s two-day policy meeting on Tuesday. The U.S. central bank is not expected to raise rates at this meeting, which comes about a week before the Nov. 8 presidential election, but is expected to do so in December.
“The latest data should be of comfort to the Fed. Spending continues to underpin growth and, combined with positive developments on the labor market and inflation, should enable the Fed to tighten policy in December,” said Greg Daco, head of U.S. macroeconomics at Oxford Economics in New York.
Economists had forecast consumer spending rising 0.4 percent last month. When adjusted for inflation, consumer spending rose 0.3 percent after falling 0.2 percent in August.
The spending figures were incorporated into last Friday’s report on third-quarter gross domestic product. Consumer spending increased at a 2.1 percent annual pace after advancing at a robust 4.3 percent rate in the prior period.
A separate report on Monday showed factory activity in the U.S. Midwest hit a five-month low in October amid declining production and weak growth in new orders. The report from the Institute for Supply Management-Chicago suggests prolonged weakness in manufacturing as the sector continues to deal with the aftermath of a dollar rally and lower oil prices.
U.S. stocks were trading marginally higher as investors showed caution ahead of next Tuesday’s elections. The dollar .DXY rose against a basket of currencies, while U.S. Treasury yields fell.