You are here

US consumer spending slows in October, inflation picking up

[WASHINGTON] US consumer spending slowed in October as the hurricane-related boost to motor vehicle purchases faded, while underlying price pressures pushed higher for a second straight month, suggesting a recent disinflationary trend has probably run its course.

The Commerce Department said on Thursday consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3 per cent last month after a downwardly revised 0.9 per cent jump in September.

Consumer spending in September posted its largest gain since August 2009 and was buoyed by drivers in Texas and Florida replacing automobiles destroyed when Harvey and Irma slammed the states in late August and early September.

Economists polled by Reuters had forecast consumer spending increasing 0.3 per cent in October after a previously reported 1.0 per cent rise in September. Spending on long-lasting goods like autos fell 0.1 per cent last month after surging 2.9 per cent in September. Spending on nondurable goods rose 0.2 per cent and outlays on services increased 0.3 per cent.

Market voices on:

Though overall inflation subsided as disruptions to the supply chain following the hurricanes eased, underlying price pressures increased again at a steady clip in October.

The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.2 percent in October after a similar gain in September. The so-called core PCE increased 1.4 per cent in the 12 months through October, matching September's rise.

The core PCE has undershot the Fed's 2 per cent target for nearly 5-1/2 years. Signs that the disinflationary trend from earlier this year was probably over bolsters expectations that the Fed will raise interest rates next month. The US central bank has increased borrowing costs twice this year.

Fed Chair Janet Yellen told lawmakers on Wednesday that she believed the recent weak inflation readings likely reflected "transitory factors." Ms Yellen acknowledged the low inflation rates "could reflect something more persistent." With underlying inflation rising, the so-called real consumer spending edged up 0.1 per cent in October after increasing 0.5 per cent in September.

That will probably do little to change economists'expectations of solid consumer spending growth in the fourth quarter because September's strong gain put consumption on a higher growth trajectory.

Consumer spending grew at a 2.3 per cent annualized rate in the third quarter, slowing from the April-June quarter's brisk 3.3 per cent pace. Spending is, however, coming at the expense of savings as income growth remains moderate.

Personal income rose 0.4 per cent last month after advancing by the same margin in September. Wages rose 0.3 per cent last month. Savings increased to US$457.3 billion in October from US$429.9 billion in the prior month, which was the lowest level since August 2008.

The saving rate increased to 3.2 per cent after falling to 3.0 per cent in September, which was lowest since December 2007.