Consumer Spending Rises Less Than Forecast as Americans Save

U.S. Economic Data: What Does It Mean to Investors?
  • Wages recorded biggest gain in five months in October
  • Fed policy makers monitoring low inflation, even as jobs added

Household spending rose less than forecast in October, showing the biggest part of the U.S. economy was off to a slow start heading into the holiday shopping season.

Purchases increased 0.1 percent for a second month, Commerce Department figures showed Wednesday in Washington. The median forecast of 74 economists in a Bloomberg survey called for a 0.3 percent advance. Income gains accelerated and the saving rate jumped to the highest level in almost three years.

Consumers last month pocketed most of the savings from the plunge in gasoline prices, pickup in wages and lower heating bills caused by milder-than-usual temperatures, signaling households will remain frugal heading into 2016. Low inflation and gains in employment indicate Americans have the wherewithal to boost spending should confidence firm.

“Consumers are picking and choosing when to spend because they have limited dollars,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York, who correctly predicted the outlays data. “What you’re seeing in the labor markets isn’t really translating into confidence or spending on anything other than cars.”

Other reports Wednesday showed demand for capital equipment climbed in October by the most in three months and fewer Americans filed for unemployment benefits last week.

Wage Pickup

Wages rose 0.6 percent in October, the biggest gain in five months, after being little changed in September, the Commerce Department’s report showed. The gain in pay contributed to a 0.4 percent increase in incomes that was twice as large as the prior month’s advance. The reading matched the median forecast in a Bloomberg survey.

Projections for consumer spending in the Bloomberg survey ranged from gains of 0.1 percent to 0.4 percent.

Wednesday’s data also showed that after adjusting for inflation, in order to generate the figures used to calculate gross domestic product, purchases increased 0.1 percent in October for a second month.

Household outlays on services were little changed in October after adjusting for inflation, probably reflecting a drop in utility use. Last month marked the fourth-warmest October for the contiguous U.S. in National Oceanic and Atmospheric Administration data that start in 1895. The milder temperatures brought the year-to-date average to its warmest since 2012, according to the agency figures.

Services Outlay

The services category, which also includes tourism, legal help, health care and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.

Disposable income, or the money remaining after taxes, rose 0.4 percent in October from the prior month after adjusting for inflation. It was up 3.9 percent over the past year. The savings rate climbed to 5.6 percent, the highest since December 2012, from 5.3 percent in September.

The personal spending report showed the price index tied to consumer purchases increased 0.1 percent in October from the prior month. It rose 0.2 percent from the same time in 2014. This inflation gauge is preferred by Federal Reserve policy makers and hasn’t met their 2 percent goal since April 2012.

Stripping out the volatile food and energy categories, the price measure was little changed from September and rose 1.3 percent in the 12 months ended in October.

Fed View

Federal Reserve Governor Daniel Tarullo is among central bankers monitoring low inflation even as employment has shown steady gains.

“The U.S. economy seems still to be chugging along with modestly above-trend growth,” Tarullo said Monday in an interview on Bloomberg Television. “We’ve certainly seen continued improvement in the labor market, but the environment for inflation is still one where there is still a lot of uncertainty.”

Steady gains in consumer purchases will be needed to keep U.S. growth churning. The economy expanded at a 2.1 percent pace in the third quarter, a faster rate than previously reported, reflecting a smaller hit from efforts to rein in bloated inventories, Commerce Department data showed Tuesday.

An improving labor market, nascent signs of a pickup in wage growth, and still-cheap prices at the pump have helped give Americans the means to spend. Payroll growth surged in October by the most this year. Last month’s advance lifted the monthly average so far in 2015 to 206,000. That compares with a 260,000 average gain last year that was the best since 1999.

Worker pay increased 2.5 percent over the 12 months ended in October, the most in more than six years, following a 2.3 percent gain the prior month. They had been stuck around near 2 percent on average since the current expansion began in mid-2009.

Gasoline costs have been receding for most of the past five months. The average price of a gallon of regular gasoline fell to $2.06 on Nov. 23, the lowest since February, according to auto group AAA. That compares with a daily average of $3.34 per gallon in 2014.

(Updates with analyst comment in fourth paragraph.)

Before it's here, it's on the Bloomberg Terminal. LEARN MORE