US con­sumer spend­ing surges, un­der­ly­ing in­fla­tion slows

The Gulf Today - Business - - FRONT PAGE -

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.

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