U.S. consumer spending slows as household savings increase
Consumer spending in U.S. barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter.
Anaemic consumer spending will probably do little to change expectations that the Federal Reserve will raise interest rates next month as other data on Wednesday showed a surge in business spending plans in October and a drop in new applications for unemployment benefits last week.
The Commerce Department said consumer spending edged up 0.1 percent after a similar increase in September. That suggests consumer spending, which accounts for more than two-thirds of U.S. economic activity, has slowed from the third quarter’s brisk 3.0 percent annual pace.
The tepid rise in consumer spending could combine with an anticipated drag from an ongoing inventory reduction to hold the economy to around a 2 percent growth rate in the fourth quarter.
But the economy, which expanded at a 2.1 percent rate in the third quarter, could get support from business spending.
In a separate report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.3 percent last month after rising 0.4 percent in September.
Coming on the heels of data this month showing a solid increase in manufacturing output in October, it suggested the worst of the drag from a strong dollar and deep spending cuts by energy firms was over.
Fed officials had held off raising rates at their last two meetings as they assessed the degree to which dollar strength and a slowing in economies overseas would weigh on the United States.
Manufacturing, which accounts for 12 percent of the economy, has been slammed by the strong dollar and spending cuts in the energy sector. The dollar has appreciated 18.1 percent against the currencies of the United States’ main trading partners since June 2014.
The pace of appreciation, however, is gradually slowing. Economists also believe that the bulk of spending cuts by oil field firms like Schlumberger (SLB.N) in response to lower crude prices have already been implemented. U.S. Treasury debt prices pared gains after the reports, while the dollar hit an eight-month high against a basket of currencies.
Economists speculate that rising rents are diverting money from discretionary spending. While consumer sentiment increased in November from October, households continued to fret over their financial prospects, another report showed.
But as the labor market continues to tighten, there is optimism that wage growth will pick up and encourage consumers to loosen their purse strings and boost spending.
A fourth report from the Labor Department showed initial claims for state unemployment benefits declined 12,000 to a seasonally adjusted 260,000 for the week ended Nov. 21.
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Source:Thehindu
