The Economy

Consumer Spending Starts Q4 With Solid Gain

The 0.3% increase fell below economists' expectations but was "sufficiently strong to support economic growth in the fourth quarter.”
Matthew HellerDecember 1, 2016
Consumer Spending Starts Q4 With Solid Gain

U.S. consumer spending posted another solid gain in October and inflation continued to show signs of firming, buoying hopes of strong economic growth in the fourth quarter.

The Commerce Department said personal consumption rose a seasonally adjusted 0.3% last month after a revised 0.7% jump in September. Economists polled by Reuters had forecast consumer spending would rise 0.4% in October.

Reuters said households took advantage of rising incomes to boost savings to a seven-month high, but spending “remained sufficiently strong to support economic growth in the fourth quarter.” The September increase was the second-largest monthly gain in two years.

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“The economy continues to move ahead powered by the American consumer who has got the income to both spend and save for a rainy day,” Chris Rupkey, chief economist at MUFG Union Bank in New York, told Reuters.

Incomes rose 0.6% in October, the best monthly gain since April, after a 0.4% gain in September.

“Conditions for consumers remain solid,” Gus Faucher, economist at PNC Financial Services Group, told The Wall Street Journal. “With more jobs and higher wages, households have more money in their pockets to purchase goods and services.”

The Commerce Department also reported that the personal consumption expenditures (PCE) price index rose 1.4% in the 12 months through September, the biggest gain since October 2014, after advancing 1.2% in September.

The core PCE index, which excludes food and energy, rose 1.7% year-on-year for the second straight month, still below the Federal Reserve’s target of 2.0% but according to Reuters, “Firming inflation and the strengthening economy could encourage the Fed to raise interest rates next month.”

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The uptick in price pressures curbed the gain in inflation-adjusted consumer spending, which increased 0.1%t last month after rising 0.5% in September. Overall consumer spending was boosted by a 1.0% increase in purchases of long-lasting manufactured goods such as automobiles.