U.S. consumer spending trailed forecasts in September while weekly applications for unemployment benefits rose more than projected, offering a note of caution on the economy as Federal Reserve policy makers signal a pause from interest-rate cuts.

Consumer outlays for goods and services, which account for about 70% of gross domestic product, increased 0.2% from the prior month after a 0.2% August advance that was larger than previously estimated, Commerce Department data showed Thursday. The report also showed income gains matched projections, while the Fed’s preferred inflation gauge matched the slowest pace since 2016.

The figures suggest cooling momentum in Americans’ spending, which is key to sustaining the record-long expansion -- and crucial for President Donald Trump’s re-election prospects -- amid slowing payroll gains, trade tensions and weakness abroad. The data flesh out details on the economy after Wednesday’s GDP report showed consumption grew more than forecast in the third quarter as business investment saw a steeper decline.

Fed Chairman Jerome Powell highlighted a strong job market, rising incomes and solid consumer confidence in his press conference Wednesday after the central bank cut interest rates for a third straight meeting and suggested it would pause. “The consumer is really driving growth” and hasn’t shown signs of being dragged down by weakness in manufacturing, exports or business investment, he said.
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Powell also cited low levels for initial unemployment claims as another positive sign, and they remain relatively low even with the latest increase. The Labor Department’s latest report Thursday showed that such filings rose 5,000 to 218,000 in the week ended Oct. 26, compared with projections for 215,000. The four-week average, a less-volatile measure, declined to 214,750.

Elsewhere in Thursday’s releases, the personal consumption expenditures price gauge, which the Fed officially targets for 2% inflation, was little changed from the prior month and up 1.3% from a year earlier.

Core Inflation

The core PCE price index, which excludes food and energy, was also little changed from the prior month, slightly below projections, and up 1.7% from a year earlier. It increased at a 1.6% annualized rate over the past three months compared with 2.5% in the three months through August. Policy makers view the core gauge as a better indicator of underlying price trends.

After adjusting for the increase in inflation, spending rose 0.2% from the prior month. The gain in September was driven by new motor vehicle purchases and health-care outlays, according to the report.

Consumer spending relies on wage gains. The Commerce Department’s report showed wages and salaries were little changed in September from the prior month. The strike by General Motors Co. workers that began in September reduced wages and salaries by $1.9 billion during the month, according to the report.

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