The Economy

U.S. Consumer Spending Growth Slows to 0.5%

Amid the surge in coronavirus infections, “We are increasingly worried that the monthly gains in consumption will be weaker."
Matthew HellerNovember 30, 2020

U.S. consumer spending started the fourth quarter with another gain but economists expect the pace of growth will slow as the coronavirus surges and federal aid expires.

The Department of Labor reported that spending rose 0.5% in October — the sixth straight monthly increase but the smallest since April. Economists polled by MarketWatch had expected a 0.4% rise after a revised 1.2% gain in September.

“Consumer spending has been strong enough to help fuel economic growth since the spring, when the coronavirus pandemic forced millions of businesses, schools and government agencies across the U.S. to shut down or limit their activities,” The Wall Street Journal said.

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But economists are concerned that the new wave of Covid-19 infections, which has led some cities and states to impose new restrictions, could reduce spending. The Jan. 1 expiration of expanded unemployment benefits, moreover, will likely lead to a drop in income for many jobless workers.

Household income fell 0.7% last month and the University of Michigan’s measure of consumer confidence showed that Americans have become more worried about the months ahead.

“There’s much more momentum than we had presumed,” said Pooja Sriram, U.S. economist at Barclays. “The real question we’ve been asking ourselves is, is this momentum sustainable?”

Gross domestic product grew at a record annual rate of 33.1% in the third quarter, or 7.4% from the prior quarter, but forecasting firm IHS Markit projects output to expand at a 5.7% annual rate in the current quarter.

The October report suggests “consumer spending, the primary driver of the U.S. economy, is being restrained by weakened conditions and the failure of Congress to provide another stimulus package to struggling people and businesses,” the Associated Press said.

“We are increasingly worried that the monthly gains in consumption will be weaker,” Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a research note.

(Photo by Stephen Zenner/SOPA Images/LightRocket via Getty Images)