- Consumer spending rises 0.2% in October
- Personal income rises 0.2%; Savings rate rises to 3.8%
- Core PCE Price Index Rises 0.2%; 3.5% more than last year
- Weekly jobless claims rise by 7,000 to 218,000
- Current claims increase by 86,000 to 1.927 million
WASHINGTON, Nov 30 (Reuters) – U.S. consumer spending rose moderately in October, while the annual rise in inflation was the smallest in more than two and a half years. Signs of slowing demand bolstered expectations for the Federal Reserve’s interest rate hike campaign.
Those hopes were bolstered on Thursday by other data showing a gradual easing in the labor market. More Americans applied for unemployment benefits last week, and the number of unemployed rose to its highest level in two years in mid-November.
Although the increase in so-called continuing claims was consistent with anecdotal evidence of slowing demand for workers, it also reflected the challenge of adjusting the data for seasonal fluctuations after an unprecedented surge in jobless claims early in the COVID-19 pandemic was recorded.
“This morning’s data provides more ammunition for (Fed Chairman Jerome) Powell and others at the Fed who are considering a prolonged suspension of monetary policy rather than an additional rate hike to curb inflationary pressures,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. “There is evidence that recently laid-off people may take longer to find a new job.”
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% last month after rising flatly at 0.7% in September, the Commerce Department’s Bureau of Economic Analysis said. The increase was in line with economists’ expectations.
A 0.4% increase in spending on services, including health care, housing and utilities, and international travel, was partially offset by a 0.2% decline in spending on goods such as new light trucks, likely reflecting shortages , which were caused by the recently suspended United Auto workers strike.
The slowdown in consumer spending followed a strong pace of growth in the third quarter and reflected the impact of higher borrowing costs and the depletion of excess savings among low-income households. Although wages remain high, the pace of growth has slowed compared to the beginning of the year as labor market momentum weakens. Personal income rose 0.2% last month after rising 0.4% in September. Wages rose slightly by 0.1%, after rising 0.5% in September. Slower wage growth coupled with the resumption of student loan repayments last month means millions of Americans will have to curb spending next year.
Fears that the economy could slip into recession in early 2024 could lead households to hold back on spending and instead build up their savings. The savings rate rose to 3.8% from 3.7% in September. So far, the economy has defied recession forecasts, growing at a robust annual pace of 5.2% in the third quarter, the fastest in nearly two years.
Inflation-adjusted consumer spending rose 0.2% last month. Economists expect spending to slow to about 2% this quarter. Most expect the economy to enter a period of very slow growth and avoid an outright recession. The Atlanta Fed cut its fourth-quarter GDP growth estimate to 1.8% from 2.1%.
Stocks rose on Wall Street, with the Dow Jones Industrial Index (.DJI) hitting its highest level this year. The dollar gained against a basket of currencies. US Treasury bond prices fell.
ownconsumption
INFLATION COOLING
Inflation, as measured by the personal consumption expenditures (PCE) price index, remained unchanged in October after rising 0.4% in September. Food prices rose 0.2% and the cost of energy products fell 2.6%.
In the 12 months to October, the PCE price index rose 3.0%. That was the smallest year-on-year increase since March 2021 and followed a 3.4% rise in September.
Excluding the volatile food and energy components, the PCE price index rose 0.2% last month. The so-called core PCE price index rose 0.3% in September. Economists say monthly inflation readings of 0.2% on a sustained basis are needed to bring inflation back to the Federal Reserve’s 2% target.
The core PCE price index rose 3.5% year-on-year in October, the smallest increase since April 2021, after rising 3.7% in September.
The so-called super-core, which is PCE services excluding energy and housing, rose 0.1% after rising 0.4% the previous month. The super core rose 3.9% year-on-year in October, slowing from a 4.3% rise in September.
The Fed tracks PCE price indices for monetary policy. Policymakers are watching the super core PCE price index to gauge their progress in fighting inflation.
Slowing demand and inflation have raised optimism that the Fed will likely be done raising interest rates this cycle, with financial markets even expecting a rate cut in mid-2024.
Policymakers suggested Thursday that rate hikes were likely over, but pushed back on market expectations that rate cuts would come soon. Since March 2022, the Fed has raised its federal funds rate by 525 basis points to the current range of 5.25% to 5.50%.
A separate report from the Labor Department said initial claims for state unemployment benefits rose by 7,000 to a seasonally adjusted 218,000 in the week ended Nov. 25.
The number of people receiving benefits after an initial week of aid, an indicator of hiring, rose by 86,000 to 1.927 million in the week ended Nov. 18, the highest level since November 2021, the claims report showed. Some economists were skeptical about the rise in ongoing claims, pointing out that it was difficult to factor out seasonal fluctuations from the data.
Goldman Sachs estimated that seasonal distortions were responsible for the 269,000 increase in continuing claims since the beginning of September and expected that number to rise by another 125,000 by March next year.
“However, we should keep in mind that the seasonal adjustment process for current claims data looks unusual compared to previous comparable years, so the recent upward trend in claims may not be a reliable reflection of underlying labor market conditions,” said Daniel Silver, an economist at JPMorgan in New York.
Unemployment Claims
Nevertheless, the labor market is cooling down in parallel with overall demand in the economy. The Fed’s Beige Book report on Wednesday described labor demand as having “declined further” in the weeks ending in mid-November, with most counties reporting “flat to moderate gains in overall employment.”
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
Our standards: The Thomson Reuters Trust Principles.
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