WASHINGTON: US consumer spending slowed in October as the hurricane-related boost to motor vehicle purchases faded, while a sustained increase in underlying price pressures suggested that a recent disinflationary trend had probably run its course.
Other data on Thursday showed a second straight weekly drop in first-time applications for unemployment benefits, pointing to a further tightening in labour market conditions that could soon generate faster wage growth and keep consumer spending supported, as well as push inflation higher.
The reports strengthened expectations that the Federal Reserve will raise interest rates next month. The US central bank has increased borrowing costs twice this year.
The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3 per cent last month after surging 0.9 per cent in September. Last month’s increase in consumer spending was in line with economists’ expectations.
The jump in spending in September was the largest since August 2009 and was spurred by some drivers in Texas and Florida replacing automobiles destroyed when Hurricanes Harvey and Irma slammed the states in late August and early September.
Spending on long-lasting goods like autos fell 0.1 per cent last month after accelerating 2.9 per cent in September. Spending on nondurable goods such as prescription drugs and recreational items rose 0.2 per cent. Outlays on services increased 0.3 per cent amid a rise in airline tickets for foreign travel and communication services.
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 Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.2 per cent 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. Fed Chair Janet Yellen told lawmakers on Wednesday that she believed the recent weak inflation readings likely reflected “transitory factors,” but also acknowledged the low inflation rates “could reflect something more persistent.”
The dollar fell against a basket of currencies, while prices for US Treasuries edged down. Stocks on Wall Street were trading higher, with the blue-chip Dow Jones industrial average index racing past the 24,000 mark for the first time. With underlying inflation rising last month, so-called real consumer spending edged up 0.1 per cent after increasing 0.5 per cent in September. The weak real consumer spending prompted economists to lower their fourth-quarter gross domestic product growth estimates by as much as two-tenths of a percentage point to as low as a 2.2 per cent annualised rate.
Growth estimates for the fourth quarter have been lowered this week from around a 3 per cent pace in the wake of data showing a large goods trade deficit in October and declines in wholesale and retail inventories. The economy grew at a 3.3 per cent rate in the third quarter, the fastest in three years.
Households are dipping into savings to maintain spending amid moderate wage growth. Personal income rose 0.4 per cent last month after advancing by the same margin in September. — Reuters\
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