Northwest Arkansas Democrat-Gazette
U.S. says consumer spending up 0.3%
WASHINGTON — Americans increased their spending in October at the fastest rate in three months even though income growth was essentially flat, its weakest showing in 13 months.
The Commerce Department said Wednesday that consumer spending rose 0.3% last month, the best gain since a 0.5% rise in July.
An inflation gauge that is tied to spending edged up 0.2% and is just 1.3% higher over the past 12 months, well below the Federal Reserve’s 2% annual target level for inflation.
The increase in October spending adds to evidence that consumers will likely do their part this quarter to offset a drag from businesses. Although investments increased last month, analysts expect to see companies cut back on investment plans because of the ongoing U.S.-China trade war.
The Christmas shopping season is expected to be a solid one. The National Retail Federation has forecast that sales will rise between 3.8% and 4.2%, a sharp increase from last year.
During the July-September quarter, consumer spending, which accounts for about 70% of the economy, grew at a solid 2.9% annual pace. Overall growth, as measured by gross domestic product, amounted to a 2.1% rate last quarter, the government said Wednesday. That’s slightly lower than the 2% annual gain in the previous quarter.
The flat reading for incomes reflected a sharp 1% drop in a category that measures business owners’ income. At the same time, the important category of wages and salaries showed a solid increase of 0.4%.
The 1.3% gain in inflation over the past 12 months provides further evidence to the Fed that there is little need to raise interest rates. The Fed raised rates four times last year but has cut them three times this year in response to a slowing economy and threats resulting from the trade war.
The personal saving rate was 7.8% in October, a slight dip from 8.1% in September.
Last month’s 0.3% increase in consumer spending reflected gains in sales of nondurable goods such as food, clothing and services, which offset a big drop in the sale of durable goods such as autos.
But the Commerce Department said Wednesday that orders for durable goods — which are meant to last at least three years — rose 0.6% in October after dropping in September. Orders for military aircraft increased 18.1%. Excluding defense, orders for durable goods rose just 0.1%.
The numbers reflected a strike at General Motors, which was settled in late October. Orders for cars and auto parts fell 1.9% in October and 2.9% in September.
American manufacturing has been hurt by the trade war with China and a slowing global economy. For this year, orders for durable goods are down 0.8%. Orders for civilian aircraft have plunged 38.5% this year after Boeing suspended production of the 737 Max while regulators investigate two deadly crashes.
Overall, the increase in durable-goods orders from September to October was better than economists had expected. But the September figure was downgraded to a 1.4% drop, worse than the 1.1% decrease the Commerce Department originally announced.
A closely watched category that tracks business investment rose 1.2% last month, the biggest jump since January, reversing a 0.5% drop in September.
“It does start the quarter on a positive note with regard to business investment,” said Kevin Cummins, an economist at NatWest Markets. At the same time, “I don’t think it’s necessarily something we’re going to extrapolate going forward. I think there’s just a lot of uncertainty with regard to the outcome of trade policy,” and the 2020 election may also spur some hesitation among business leaders, he said.