US consumer spending shows signs of slowing
Business sentiment improves, weekly jobless claims fall
WASHINGTON: US consumer spending barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter.
Anemic consumer spending will probably do little change expectations that the Federal Reserve will raise interest rates next month as other data yesterday showed a surge in business spending plans in October and a drop in new applications for unemployment benefits last week.
The Commerce Department said consumer spending edged up 0.1 percent after a similar increase in September. When adjusted for inflation, consumer spending rose by the same margin.
That suggests consumer spending, which accounts for more than two-thirds of US economic activity, has slowed from the third quarter’s brisk 3.0 percent annual pace. The tepid rise in consumer spending could combine with an anticipated drag from an ongoing inventory reduction to hold the economy to around a 2 percent growth rate in the fourth quarter. The government reported on Tuesday that the economy expanded at a 2.1 percent rate in the third quarter.
The economy could get support from business spending. In a separate report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.3 percent last month after rising 0.4 percent in September.
The report came on the heels of data this month showing a solid increase in manufacturing output in October, and was the latest suggestion that the worst of the drag from a strong dollar and deep spending cuts by energy firms was over. Fed officials had held off raising rates at their last two meetings as they assessed the degree to which a stronger dollar and a slowing in economies overseas would weigh on the United States.
Manufacturing, which accounts for 12 percent of the economy, has been slammed by the dollar strength and the spending cuts in the energy sector. The dollar has appreciated 18.1 percent against the currencies of the United States’ main trading partners since June 2014. The pace of appreciation, however, is gradually slowing. Economists also believe that the bulk of spending cuts by oil field firms like Schlumberger in response to lower crude prices have already been implemented. US Treasury debt prices pared gains after the reports, while the dollar hit an eight-month high against a basket of currencies. US stock index futures slightly extended gains.
WAGES RISING
Economists speculate that rising rents are diverting money from discretionary spending. But as the labor market continues to tighten, there is optimism that wage growth will pick up and encourage consumers to loosen their purse strings and boost spending. A third report from the Labor Department showed initial claims for state unemployment benefits declined 12,000 to a seasonally adjusted 260,000 for the week ended Nov 21.
Claims have now held below the 300,000 threshold for 38 consecutive weeks, the longest stretch in years, and remain close to levels last seen in the early 1970s. Strengthening labor market conditions are gradually lifting income. The Commerce Department said personal income increased 0.4 percent last month, accelerating after a 0.2 percent gain in September. Wages and salaries shot up 0.6 percent, the largest increase since May.
Savings increased to $761.9 billion last month, the highest level since December 2012, from $722.9 billion in September. Higher savings could over time buoy consumer spending.
There was still no sign of inflation, which has persistently run below the Federal Reserve’s 2 percent target. A price index for consumer spending ticked up 0.1 percent after declining in September for the first time since January. In the 12 months through October, the personal consumption expenditures (PCE) price index was up 0.2 percent after a similar rise in September. Excluding food and energy, prices were unchanged after rising by 0.2 percent in September. The so-called core PCE price index rose 1.3 percent in the 12 months through October, for the 10th straight month.
Home sales
Sales of new homes recovered in October after suffering a steep drop in September, indicating a return to stability in the housing market.
The Commerce Department says new-home sales climbed 10.7 percent last month to a seasonally adjusted annual rate of 495,000. This rebound followed a 12.9 percent plunge in the sales rate during September. Americans recovered much of their appetite for owning new homes this year. Purchases have surged 15.7 percent year-to-date, benefiting from the solid hiring gains and low mortgage rates.
The new-home sales report tends to be volatile from month to month. Home-buying surged 135.5 percent in the Northeast in October, while rising less aggressively in the Midwest and South. Sales dropped slightly in the West. But prices dipped last month despite other industry reports indicating that real estate prices have eclipsed income growth. In October, the median new-home sales price fell 8.5 percent from a year ago to $281,500.