Consumer Spending in U.S. Rose More Than Forecast in October

Photographer: Ty Wright/Bloomberg

Shoppers at the Easton Towne Center in Columbus, Ohio. Close

Shoppers at the Easton Towne Center in Columbus, Ohio.

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Photographer: Ty Wright/Bloomberg

Shoppers at the Easton Towne Center in Columbus, Ohio.

Consumer spending in the U.S. rose more than forecast in October, a sign the biggest part of the economy is gaining momentum from a firming employment.

Household purchases, which account for about 70 percent of the economy, climbed 0.3 percent after a 0.2 percent increase the prior month, the Commerce Department reported today in Washington. The median estimate in a Bloomberg survey of 73 economists called for a 0.2 percent rise. Incomes dropped 0.1 percent, reflecting swings in farm revenue caused by a lawsuit.

Rising home values and equity prices are giving a lift to households, helping offset the effects of a government shutdown in October and this year’s higher tax rates. Today’s report follows data this week showing household spending up 1.4 percent in the third quarter, the smallest advance since early 2009. Retailers reported a lackluster Black Friday start to the holiday shopping season.

“People are feeling better, that’s a positive for the holiday season,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “This year I don’t see the same strong fiscal headwinds ahead of us to impede our momentum.”

Projections for spending ranged from gains of 0.1 percent to 0.4 percent. September’s reading previously was reported as an increase of 0.2 percent.

Payrolls increased more than forecast in November and the unemployment rate dropped to the lowest level in five years, indicating household purchases will be sustained into 2014, another report today showed.

Payrolls Rise

Employment climbed by 203,000 workers last month after a 200,000 gain in September, according to figures from the Labor Department. The median forecast of economists surveyed by Bloomberg projected a 185,000 increase. The jobless rate fell to 7 percent, the lowest since November 2008.

Stock-index futures climbed after the reports. The contract on the Standard & Poor’s 500 Index maturing in this month rose 0.5 percent to 1,792.9 at 8:37 a.m. in New York.

The Bloomberg survey median called for incomes to rise 0.3 percent. The drop in October was the first decrease since January and followed a 0.5 percent September gain. Settlement of a class-action lawsuit boosted farm-owners income by $10.1 billion at an annualized rate in September accounting for the swing back down the following month.

Wages and salaries climbed 0.1 percent in October, the smallest gain since a drop in July, following a 0.4 percent increase the prior month.

Faster Growth

Gross domestic product climbed at a 3.6 percent annualized rate, the Commerce Department reported this week, the strongest expansion since the first quarter of 2012. Consumer spending showed the smallest gain since the fourth quarter of 2009 and growth in disposable income slowed.

After adjusting for inflation, consumer purchases rose 0.3 percent, the best performance in seven months, after a 0.1 percent increase in September, today’s report showed.

The price index tied to spending, a measure of inflation tracked by Federal Reserve policy makers, increased 0.7 percent in October from the same month last year, the least since October 2009. The central bank’s goal is to keep prices increasing at around 2 percent.

Core prices, which exclude the volatile food and fuel categories, rose 0.1 percent from September and were up 1.1 percent from October 2012.

Saving Rate

The saving rate fell to 4.8 percent from 5.2 percent, which was the highest this year.

Household outlays on services rose 0.1 percent in October after adjusting for inflation. The category, includes tourism, legal help, health care, and personal care and is difficult for the government to estimate.

Inflation-adjusted spending on durable goods including cars increased 0.8 percent after falling 1.4 percent. Purchases of non-durable goods, including gasoline, climbed 0.7 percent.

Today’s report follows a mixed kickoff to the holiday shopping season. The Black Friday weekend saw a drop in spending for the first time since 2009, with retailers extending their deep discounts and promotions. Retailer Kohl’s Corp this week announced that beginning Dec. 20 it will be open around the clock until Christmas Eve.

Online shopping surged about 20 percent to a record on Cyber Monday as many consumers snubbed physical stores and took to the Web to buy holiday gifts.

Expensive Purchases

Americans are also buying big-ticket items such as cars, pushing sales to their fastest pace in more than five years. November deliveries rose 16 percent for Chrysler Group LLC from the same month last year, 14 percent for General Motors Co. and more than 10 percent for Toyota Motor Corp. and Nissan Motor Co. In all, cars and light trucks sold at a 16.3 million annualized rate, the highest since May 2007, according to data from Ward’s Automotive Group.

“The economy is creating jobs and household wealth, energy costs are dropping, and credit is available and affordable,” GM’s Kurt McNeil, vice president of U.S. sales operations, said on a Dec. 3 earnings call. “All of this bodes well for more growth in 2014.”

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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