WASHINGTON: US
consumer spending slowed sharply in August, according to the latest government
data Friday, suggesting turmoil from President Donald Trump's trade wars was
hitting home for the general public. And in another sign trade tribulations are
weighing on American industry, demand for big-ticket manufactured goods also
showed unwelcome weakness, economists said.

The new data
Friday caused some economic forecasters to cut their third-quarter GDP growth
estimates sharply, and they also were likely to exacerbate disagreements among
US central bankers over the path of interest rates. Federal Reserve
policymakers are increasingly divided over the direction of monetary policy but
markets expect they will vote to cut the benchmark lending rate again this year
to cushion the trade war's impact on the economy.

But the data also
showed underlying inflation perking up by the most in seven months on an annual
basis in August, which economists said could put the Federal Reserve in a
difficult position as it seeks to keep the longest economic expansion on
record, now in its 11th year, on track. The Fed last week cut interest rates
for the second time this year, citing the ongoing risks from the Trump
administration's nearly 15-month trade war with China and slowing global
growth. The US central bank lowered borrowing costs in July for the first time
since 2008.

"We still
expect the Fed will cut rates in the fourth quarter, but squaring this soft
read on the consumer, business investment and a slight rebound in underlying
inflation admittedly pulls the Fed in opposite directions," said Tim
Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North
Carolina. Consumer spending, which accounts for more than two-thirds of US
economic activity, edged up 0.1 percent last month as an increase in outlays on
recreational goods and motor vehicles was offset by a decrease in spending at
restaurants and hotels.

On one hand, a
key component of the Federal Reserve's preferred inflation measure of ticked
higher in August for the third month in a row, although it remains below the
Fed's two percent target, according to Commerce Department data. That could
bolster arguments against cutting interest rates again.

But on the other
hand the decline in consumer spending and weakness in durable goods orders
suggest the world's largest economy is slowing faster than expected, suggesting
easier interest rates are needed to boost it. Ian Shepherdson of Pantheon
Macroeconomics said Friday said the trade war made consumers
"nervous" and "the consumer boom is coming to an end,
rapidly."

The Commerce
Department said disposable incomes adjusted for inflation rose 0.4 percent in
August, the biggest increase since February, suggesting consumers have plenty
of cash available. But spending slowed to show a tepid 0.1 percent gain, its
smallest monthly pace since February. Compared to the same month last year, the
increase was the weakest recorded since December 2018.

Forecasts slashed

As a result,
savings rose to $1.36 trillion, the highest level since March, meaning American
consumers are holding onto their cash. Meanwhile, August appeared at first
glance to be a better-than-expected month for US manufacturing, with a second
straight sales gain for military aircraft and equipment, according to a
Commerce Department report.

Together with a
boost in sales of primary metals, overall new orders for big-ticket, US-made
items rose 0.2 percent, far better than the one percent drop economists had
expected. But the data show other industries had a painful month, with notable
declines for civilian aircraft, autos, communications equipment, electronics
and appliances. A measure seen as a proxy for business investment, and a sign
of future business activity, also fell in August after recording a flat July.

Taking the
developments into account, Macroeconomic Advisers slashed their third-quarter
GDP forecast by 0.6 percentage point to 1.6 percent-about half what it was at
the start of the year. Fed Chair Jerome Powell last week said trade policy
tensions, which "have waxed and waned, and elevated uncertainty is
weighing on US investment and exports," adding that US central bank
contacts had told policymakers that trade policy uncertainty "has discouraged
them from investing in their businesses."

The weak core
capital goods data and tepid consumer spending led economists to cut their
third-quarter GDP estimates by as much as six-tenths of a percentage point to
as low as a 1.3 percent annualized rate. The economy grew at a 2.0 percent rate
last quarter, slowing from the January-March quarter's brisk 3.1 percent pace.

"Trade
protectionism continues to gum up US manufacturing largely by undermining
business investment," said Sal Guatieri, a senior economist at BMO Capital
Markets in Toronto. Oxford Economics cut their forecast to an even-lower 1.3
percent. That would be a sharp slowdown in an economy that grew 3.1 percent in
the first three months of the year and 2.0 percent in the second quarter.
Federal Reserve regional branches in New York and Atlanta, however, said the
new data pointed to stronger 2.1 percent growth for the July-September period.

Elsewhere,
tumbling energy prices kept a lid on overall price gains for last month, as the
Personal Consumption Expenditures price index was unchanged from July, falling
short of economists' expectations. Compared to August 2018, the PCE price
index, which tracks costs for goods and services purchased by individuals, rose
1.4 percent, holding at the same rate for four months in a row and well below
the central bank's two percent target.

When volatile
food and fuel prices are stripped out, the "core" price index for
August gained a trivial 0.1 percent over July, but rose by a hotter 1.8 percent
from a year ago. That closely-watched measure was fueled by steady gains in the
costs of US services which pushed it to its highest level since January. -
Agencies