US consumer spending increases steadily; inflation muted

[WASHINGTON] US consumer spending rose steadily in October, suggesting the economy will probably maintain its moderate pace of growth in the fourth quarter.

The Commerce Department said on Wednesday consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.3 per cent last month as households spent more on electricity and gas, offseting a drop in new motor vehicle purchases.

Consumer spending rose by an unrevised 0.2 per cent in September. Last month's increase in consumer spending was in line with economists' expectations.

The gain in consumer spending together with signs of stabilisation in business investment supports economists' expectations that the economy will continue to grow around its potential, which they estimate at between 1.7 per cent and 2.0 per cent.

The economy grew at a 2.1 per cent annualised pace in the third quarter. Though growth has slowed from a 3.1 per cent rate in the first quarter, the risks of a recession in the near term have subsided as trade tensions between the United States and China have eased and the housing market has rebounded from last year's soft patch, driven by lower mortgage rates.

The Federal Reserve last month cut interest rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.

With consumer spending rising moderately, inflation remained benign in October. Consumer prices as measured by the personal consumption expenditures (PCE) price index rose 0.2 per cent last month, lifted by food, energy goods and services prices. The PCE price index was unchanged in August and September.

In the 12 months through October, the PCE price index increased 1.3 per cent, matching September's gain.

Excluding the volatile food and energy components, the PCE price index edged up 0.1 per cent last month after being unchanged in September. That lowered the annual increase in the so-called core PCE price index to 1.6 per cent in October from 1.7 per cent in September.

The core PCE index is the Fed's preferred inflation measure, and had undershot the US central bank's 2 per cent target this year.

When adjusted for inflation, consumer spending nudged up 0.1 per cent in October after gaining 0.2 per cent in September.

Personal incomes were unchanged in October, held back by declines in interest income and farm proprietors' income. Income rose 0.3 per cent in the prior month when it was driven by an increase in farm proprietors' income related to payments to farmers caught in the US-China trade war.

Wages increased 0.4 per cent in October after climbing 0.1 per cent in September. Wages were boosted by a US$7.2 billion adjustment to account for General Motors strike pay and payments associated with a new contract for members of the United Automobile Workers union.

With spending outpacing income growth, savings fell to US$1.29 trillion from US$1.34 trillion in September. 

REUTERS