US economic figures point to moderate Q4 growth
WASHINGTON (Reuters) – 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 did little to change expectations that the Federal Reserve will raise interest rates next month as other data on Wednesday showed a surge in business spending plans in October and a drop in new applications for unemployment benefits last week.
“As far as fourth-quarter GDP goes, that is likely to keep estimates close to two percent. That’s enough to justify a rate hike as long as next Friday’s employment report is not a disaster,” said Chris Low, chief economist at FTN Financial in New York.
The Commerce Department said consumer spending edged up 0.1 percent after a similar increase in September. That suggests consumer spending, which accounts for more than two-thirds of US economic activity, has slowed from the third quarter’s brisk three 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 two percent growth rate in the fourth quarter.
But the economy, which expanded at a 2.1 percent pace in the third quarter, could get support from business spending.
In a second report, the Commerce Department said nondefense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 1.3 percent last month after rising 0.4 percent in September.
Coming on the heels of data this month showing a solid increase in manufacturing output in October, it suggested 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 dollar strength and a slowing in economies overseas would weigh on the United States.
“The surge in core capital goods orders could be a crucial signal that this important sector of the economy may be at a turning point, further bolstering the Fed’s confidence in the sustainability of the economic recovery,” said Millan Mulraine, deputy chief US economist at TD Securities in New York.
Manufacturing, which accounts for 12 percent of the economy, has been slammed by the buoyant dollar and energy sector spending cuts. The greenback has gained 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.