U.S. Consumer Spending Rose 0.5% in September as Inflation Matched Outlays
By TopHolding Editorial · Wednesday, October 28, 2026 at 8:00 PM
First Trust reports U.S. personal spending rose 0.5% in September while personal income edged up 0.2%. Economists note that rising inflation offset gains, keeping real consumption flat.
According to Andrew Opdyke, Senior Economist, Brian S. Wesbury, Chief Economist, and Robert Stein, Deputy Chief Economist at First Trust Portfolios, elevated inflation eroded household purchasing power in September despite continued spending. Personal consumption expenditures rose 0.5% during the month, falling slightly short of the 0.6% consensus expectation, while personal income climbed 0.2% against an expected 0.3% increase. After accounting for inflation, real consumption was unchanged at 0.0% in September.
The economists argue that consumer outlays are currently running ahead of earnings, pointing out that spending has grown 6.3% over the past year while personal income has risen by 4.1%. In September, wage gains of 0.2% in the private sector and higher energy costs simply offset price pressures rather than buying additional goods and services. Consequently, the team observes that the personal saving rate fell to 3.8%, warning that this reliance on diminished savings allows for immediate consumption but "isn't sustainable long-term."
Regarding monetary policy, headline consumer prices as measured by the PCE deflator increased 0.5% in September and 3.6% from a year earlier, driven by a 9.1% jump in energy costs. The core PCE deflator, which excludes food and energy, rose 0.3% month-over-month and 3.1% year-over-year. While recognizing that the Federal Reserve signaled a potential rate hike for December, First Trust's economists believe financial markets are pricing in more rate increases for 2027 than will actually occur. They expect inflation to move toward the central bank's 2.0% target over the coming year without further policy tightening, citing an M2 money supply growth rate of 5.7% over the past year.
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Key terms
1. PCE Deflator: A measure of the prices that consumers pay for goods and services across the economy, used by the Federal Reserve as its primary inflation benchmark.
2. Real Consumption: The total value of consumer spending adjusted to remove the effects of price inflation, reflecting the actual volume of goods and services purchased.
3. Personal Saving Rate: The percentage of disposable personal income that remains after personal outlays and spending are subtracted.
Source: Andrew Opdyke, CFA – Senior Economist, Brian S. Wesbury – Chief Economist, and Robert Stein, CFA – Dep. Chief Economist, First Trust Portfolios — Data Watch. Read the original at ftportfolios.com.
