US consumer spending rises; core inflation firms slightly

Commerce Department said that consumer spending increased 0.4%

US consumer spending grew briskly in August and a key measure of inflation firmed a bit, signs of strength in America's domestic economy that could lead the Federal Reserve to tighten interest rates despite weakness abroad.

The Commerce Department said on Monday consumer spending increased 0.4% after an upwardly revised 0.4% rise in July.

The figures give a bullish sign for economic growth in the third quarter.

"These data underscore the ongoing health of the consumer sector," said John Hoff, an economist at RBS Securities.

The report could help convince investors of Fed Chair Janet Yellen's view, most recently expressed on Thursday, that the economy was strong enough to warrant a rate increase this year. New York Fed President William Dudley on Monday also said a hike was likely this year and could come as soon as October.

Investors have been doubtful, with many betting that the Fed's first rate increase in a decade won't come until March.

But the U.S. dollar firmed following the consumer spending report, as did yields on US government debt, signs that some investors were bringing forward their bets on a rate increase.

Economists polled by Reuters had forecast consumer spending rising 0.3% last month. Consumer spending accounts for more than two-thirds of U.S. economic activity.

It was the latest report indicating momentum in the economy as it confronted recent global financial markets turbulence, sparked by concerns over a slowing Chinese economy, which pushed the Fed to hold off hiking rates earlier in September.

The economy grew at a robust 3.9% annual rate in the second quarter.

Last month, spending on long-lasting goods such as automobiles increased 0.9%. Outlays on services like utilities rose 0.5%.

Personal income increased 0.3% in August.

Overall inflation remained muted, reflecting low oil prices. Inflation, which has persistently run below the Fed's 2% target in annual terms, rose just 0.3% in August from the same month a year earlier.

However, prices were up 1.3% when excluding food and energy, a key metric used by the Fed to gauge the trend rate of inflation. In July, core prices rose 1.2% year-over-year.

Despite the positive signals for consumer spending, the U.S. housing market appeared to loose a step last month, with contracts to buy previously owned U.S. homes falling 1.4%.