Consumer Spending Rises at More Moderate Pace, Incomes Jump
Personal spending increased at a more moderate pace in October after the biggest gain in five months, while faster income growth signaled demand will be sustained.
Purchases rose 0.3% after a 0.7% September advance that was stronger than first estimated, Commerce Department figures showed Nov. 30. The median forecast in a Bloomberg survey called for a 0.5% advance in October. Incomes jumped 0.6%, the most since April.
Consistent job growth, projected to be reinforced with the Dec. 2 report on November payrolls, and a firming up of wages are allowing households to spend a little bit more freely. The report also showed the Federal Reserve’s preferred inflation gauge climbed to the highest since October 2014.
“The headline piece is the fact that the labor market is so strong, and we’re getting really solid income gains,” Stephen Stanley, chief economist at New York-based Amherst Pierpont Securities, said before the report. “The rest of the economy doesn’t look quite as good as the consumer right now, but the consumer is more than able to carry the load for the time being.”
Projections for consumer spending in the Bloomberg survey ranged from gains of 0.2% to 0.7%. The previous month’s reading was initially reported as a 0.5% advance.
Wages rose 0.5% in October for a second month, exceeding the 0.4% median forecast. The gain in worker pay helped propel income growth after a 0.4% increase in September that was more than previously reported.
The personal spending report showed the price index tied to consumer purchases increased 0.2% for a third month in October. It rose 1.4% from a year earlier. This inflation gauge is preferred by Fed policymakers and, while making progress, hasn’t met their 2% goal since April 2012.
Disposable income, or the money remaining after taxes, rose 0.4% in October from the prior month after adjusting for inflation, the strongest advance this year. The saving rate increased to 6% from 5.7% in September.
After adjusting for inflation, in order to generate the figures used to calculate gross domestic product, purchases increased 0.1% last month after a 0.5% advance in September that was stronger than initially estimated, the Nov. 30 report also showed.
Household outlays on services decreased 0.3% after adjusting for inflation, revealing a shortfall in utility use. Last month marked the warmest October since 1963, according to the National Oceanic and Atmospheric Administration.
The services category, which also includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.
Inflation-adjusted spending on durable goods rose 1% in October after a 2.6% surge. Purchases of non-durable merchandise increased 0.8%, the most since April.
Stripping out the volatile food and energy categories, the PCE price measure climbed 0.1% for a second month, and 1.7% in the 12 months ended in October.
Fed officials are broadly expected to raise their benchmark interest rate in December for the first time this year as they monitor still-solid labor-market gains and hints of firming price growth.
