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U.S. consumer spending in August was slightly below expectations, but the overall economic growth outlook for the third quarter remained positive. Prices also saw the smallest annual increase in over 3-1/2 years. The Commerce Department reported a narrowing goods trade deficit in August, pointing to a potential modest drag on GDP that could be offset by a rise in inventories.

Despite the data falling short of leading to another 50 basis points interest rate cut by the Federal Reserve in November, economists believe that strong wage gains and a high saving rate will continue to support consumer spending in the upcoming months. The upcoming September employment report will provide further insights into potential future interest rate adjustments.

Consumer spending, which drives more than two-thirds of the U.S. economy, rose by 0.2% in August with a focus on services such as housing, utilities, and financial services. While goods spending saw a slight dip, services spending increased, driven by healthcare, transportation, and recreation services. Strong wage gains continue to support consumer spending, adding to the positive economic outlook.

Inflation remained moderate in August, with the PCE price index rising by 0.1%. Goods prices declined, offset by a rise in services costs. Core Inflation, excluding food and energy components, increased by 0.1% in August. Financial markets adjusted their expectations for a rate cut, with a slightly higher likelihood of a 50 basis points reduction in November.

The Atlanta Fed raised its third-quarter GDP growth estimate to a 3.1% rate, citing positive trade data. The economy had grown at a 3.0% pace in the previous quarter. Overall, the data confirmed moderate Inflation and solid GDP growth for the third quarter, reinforcing the positive economic outlook.

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