Con­sumer spend­ing tops ex­pec­ta­tions


US con­sumer spend­ing rose more than ex­pected in Septem­ber as house­holds boosted pur­chases of mo­tor ve­hi­cles and in­fla­tion in­creased steadily, which could bol­ster ex­pec­ta­tions of an in­ter­est rate hike from the Fed­eral Re­serve in De­cem­ber.

The Com­merce De­part­ment said on Mon­day that con­sumer spend­ing, which ac­counts for about 70 per­cent of US eco­nomic ac­tiv­ity, in­creased 0.5 per­cent af­ter dip­ping 0.1 per­cent in Au­gust. Last month’s rise in con­sumer spend­ing of­fered a fairly strong hand­off from the third quar­ter to the cur­rent quar­ter.

The re­port was pub­lished ahead of the start of the Fed’s two-day pol­icy meet­ing on Tues­day. The US cen­tral bank is not ex­pected to raise rates at this meet­ing, which comes about a week be­fore the Nov 8 pres­i­den­tial elec­tion, but is ex­pected to do so in De­cem­ber.

“The lat­est data should be of com­fort to the Fed. Spend­ing con­tin­ues to un­der­pin growth and, com­bined with pos­i­tive de­vel­op­ments on the la­bor mar­ket and in­fla­tion, should en­able the Fed to tighten pol­icy in De­cem­ber,” said Greg Daco, head of US macroe­co­nomics at Ox­ford Eco­nom­ics in New York.

Econ­o­mists had fore­cast con­sumer spend­ing ris­ing 0.4 per­cent last month. When ad­justed for in­fla­tion, con­sumer spend­ing rose 0.3 per­cent af­ter fall­ing 0.2 per­cent in Au­gust.

The spend­ing fig­ures were in­cor­po­rated into last Fri­day’s re­port on third-quar­ter gross do­mes­tic prod­uct. Con­sumer spend­ing in­creased at a 2.1 per­cent an­nual pace af­ter ad­vanc­ing at a ro­bust 4.3 per­cent rate in the prior pe­riod.

A sep­a­rate re­port on Mon­day showed fac­tory ac­tiv­ity in the US Mid­west hit a five-month low in Oc­to­ber amid de­clin­ing pro­duc­tion and weak growth in new or­ders. The re­port from the In­sti­tute for Sup­ply Man­age­ment-Chicago sug­gests pro­longed weak­ness in man­u­fac­tur­ing as the sec­tor con­tin­ues to deal with the af­ter­math of a dol­lar rally and lower oil prices.

US stocks were trad­ing marginally higher as in­vestors showed cau­tion ahead of next Tues­day’s elec­tions. The dol­lar (.DXY) rose against a bas­ket of cur­ren­cies, while US Trea­sury yields fell.

Con­sumer spend­ing com­bined with a spurt in soy­bean ex­ports and a turn­around in in­ven­tory in­vest­ment to boost eco­nomic growth to a 2.9 per­cent pace in the third quar­ter. The econ­omy grew at a 1.4 per­cent rate in the April-June quar­ter.

Ris­ing wages due to a tight­en­ing la­bor mar­ket should help sup­port con­sumer spend­ing. With con­sumer spend­ing firm­ing, in­fla­tion con­tin­ued to gain steadily last month. The per­sonal con­sump­tion ex­pen­di­tures (PCE) price in­dex in­creased 0.2 per­cent.

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