US consumers boost spending in October as inflation cools | Business and economic news

U.S. consumer spending surged in October, while inflation moderated, giving the economy a strong hit early in the fourth quarter as it faced growing headwinds from the recession. financial crisis. Federal Reserve tightens monetary policy aggressively.

The labor market, another pillar of support for the economy, continues to show resilience. The number of Americans filing new claims for unemployment benefits fell last week, nearly unleashing last week’s gains that lifted claims to a three-month high, other data showed. on Thursday.

However, the outlook was overshadowed by news that manufacturing activity in November fell for the first time in 2.5 years, with factories reporting weak demand. However, economists remain cautiously optimistic that a recession predicted next year will be short and mild.

“Consumers are alive and well,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Right now, even if consumers don’t buy anything more in November and December, real consumer spending is growing higher than normal and without any form or form. Which looks like a recession.”

The commerce department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.8 percent after rising 0.6 percent in September. October’s gain was in line with economists’ expectations.

Inflation-adjusted consumer spending rose 0.5%, the highest since January. Estimates of economic growth in the fourth quarter are as high as 2.8 percent annualized. The the economy grew at a rate of 2.9 percent in the third quarter.

Spending on goods increased 1.4 percent, boosted by purchases of motor vehicles, furniture and recreational goods. Spending on services rose 0.5%, boosted by spending at restaurants and bars, as well as housing and utilities.

Strong pay increases, one-time tax refunds in California, showing some households getting up to $1,050 in stimulus checks and cost-of-living adjustments for food stamp recipients boosted spending . Personal income rose 0.7%, the highest in a year.

Household income, after accounting for inflation, increased by 0.4%. But consumers also tap their savings to finance their purchases. The savings rate fell to 2.3%, the lowest since July 2005, from 2.4% in September.

Declining savings cast doubt on the sustainability of the current pace of spending.

“Every month, consumers give up savings for the future to maintain the ratio that their spending exceeds their income,” said Tim Quinlan, senior economist at Wells Fargo Securities in Charlotte. further reducing their ability to weather the coming storm. North Carolina.

However, other economists argue that the savings rate is merely normalizing.

“Only a fraction of the excess savings accumulated during the first year of the pandemic was spent,” said Scott Hoyt, senior economist at Moodys’ Analytics in West Chester, Pennsylvania. “Credit is also available to many people despite becoming more expensive.”

Production touches the wall

A worker sands wooden parts for a pool table in Jeffersonville, Indiana
Factories reported weak demand as production fell [File: Luke Sharrett/Bloomberg]

Federal Reserve Chairman Jerome Powell said on Wednesday that the U.S. central bank could slow the pace of rate hikes “as soon as December.” The Fed is in the midst of its fastest rate hike cycle since the 1980s.

The personal consumption expenditures (PCE) price index rose 0.3% after the same level in September. In the 12 months to October, the PCE price index rose 6%. That was the smallest annual increase since December 2021.

Excluding volatile food and energy components, the PCE price index rose 0.2 percent after rising 0.5 percent in September. The so-called core PCE price index rose 5% year-on-year in October, after rising 5.2% in September.

The Fed tracks the PCE price indexes for a 2% inflation target. Other inflation measures have shown signs of slowing. The annual consumer price index rose less than 8% in October, the first time in eight months.

The Fed raised its policy rate from near zero to around 3.75 to 4%.

Stocks on Wall Street gave up early gains after the Institute for Supply Management reported that their manufacturing PMI (purchase management index) fell to 49 last month. It was the first drop and also the weakest reading since May 2020, when the economy reeled from the initial COVID-19 wave, and was followed by 50.2 in October.

A reading below 50 indicates a contraction in the manufacturing sector, which accounts for 11.3% of the US economy. According to the ISM, the index would need to fall below 48.7 to signal a recession in the broader economy. Falling demand is a prominent theme among manufacturers, with most blaming “uncertain economic conditions” ahead.

Despite the uncertainty, the labor market remains tight. A third report from the labor department showed initial claims for state unemployment benefits fell 16,000 to a seasonally adjusted 225,000 for the week ended Nov.

Claims rose to 241,000 last week. While some of the increases may reflect an uptick in layoffs in the tech sector, claims also tend to be volatile at the start of the holiday season when companies temporarily closed or delayed hiring.

The Fed’s Beige Book on Wednesday reported “scattered” layoffs in November in the technology, financial and real estate sectors, but noted that “several contacts expressed reluctance to lay off layoffs” workers due to difficulties in recruiting, even though their labor demand is decreasing. “

A report from global employment agency Challenger, Gray & Christmas found that on Thursday, layoffs of tech workers helped spur job cuts announced by US-based companies. announced in November. Planned job cuts rose 127 percent to 76,835 last month.

“The jobless claims data provide no evidence of weakness in the labor market until the end of the month,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. 11″.


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