US consumer spending surges, underlying inflation slows
WASHINGTON: US consumer spending increased by the most in seven months in October, but underlying price pressures slowed, with an inflation measure tracked by the Federal Reserve posting its smallest annual increase since February.
The strong consumer spending reported by the Commerce Department on Thursday probably keeps the US central bank on track to raise interest rates next month for the fourth time this year. But moderating inflation, if sustained, could temper expectations on the pace of rate hikes in 2019.
Fed Chair Jerome Powell on Wednesday appeared to signal the central bank is nearing an end to its interest-rate hikes, saying its policy rate was now “just below” a level that neither brakes nor boosts a healthy economy.
Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 0.6 per cent last month as households spent more on prescription medication and utilities.
Data for September was revised down to show spending rising 0.2 per cent instead of the previously reported 0.4 per cent gain.
Economists polled by Reuters had forecast consumer spending increasing 0.4 per cent in October.
When adjusted for inflation, consumer spending advanced 0.4 per cent, also the biggest gain in seven months and pointing to a solid pace of consumption early in the fourth quarter.
Despite the strong consumer spending, there are indications that economic growth is slowing. Data this month suggested a moderation in business spending on equipment, a deterioration in the trade deficit as well as further weakness in the housing market.
A separate report on Thursday from the Labor Department showed the number of Americans filing applications for jobless benefits increased to a six-month high last week, potentially hinting at a slowdown in job growth.
Initial claims for state unemployment benefits rose 10,000 to a seasonally adjusted 234,000 for the week ended Nov. 24, the highest level since the mid-may. Claims have now risen for three straight weeks.
The labour market has been robust, with job gains averaging 212,500 per month this year. The unemployment rate is near a 49-year low of 3.7 per cent. Tightening labour market conditions had started to push up wage inflation.
Growth estimates for the fourth quarter are currently around a 2.5 per cent annualized rate. The economy grew at a 3.5 per cent pace in the July-september quarter.
Strong consumer spending probably keeps the US central bank on track to raise interest rates next month.