By Lucia Mutikani
WASHINGTON- US consumer spending increased slightly more than expected in October, suggesting the economy retained much of its solid growth momentum early in the fourth quarter, but progress on lowering inflation appears to have stalled in recent months.
The lack of success in bringing inflation back to the Federal Reserve’s 2 percent target, together with the prospect of higher tariffs on imported goods from the incoming Trump administration, could narrow the scope for interest rate cuts from the US central bank next year.
The Fed is still widely expected to deliver a third rate cut in December, with other data on Wednesday showing more unemployed people were experiencing long bouts of joblessness in mid-November. Minutes of the Fed’s Nov. 6-7 policy meeting published on Tuesday showed officials appeared divided over how much farther they may need to cut rates.
“It is a closer call than it was at the prior two policy meetings since core services inflation remains sticky and could lead some Fed officials to argue for a pause in the rate cutting cycle next month,” said Kathy Bostjancic, chief economist at Nationwide. “We instead look for the Fed to pause the rate cuts in early 2025 to assess prospective policy changes under the second Trump administration.”
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4 percent last month after an upwardly revised 0.6 percent advance in September, the Commerce Department’s Bureau of Economic Analysis said. Economists polled by Reuters had forecast consumer spending would gain 0.3 percent after a previously reported 0.5 percent increase in September.
Adjusted for inflation, consumer spending edged up 0.1 percent, consistent with a roughly 2.5 percent annualized growth rate this quarter. Spending rose at a 3.5 percent rate in the July-September quarter, accounting for the economy’s 2.8 percent growth pace.
The Atlanta Fed is forecasting gross domestic product increasing at a 2.7 percent rate in the fourth quarter.
Spending was largely driven by strong demand for services, including healthcare, housing and utilities, financial services and insurance, dining out and hotel stays as well as transportation and recreation. Services spending rose 0.5 percent.
Goods outlays were unchanged as an increase in purchases of motor vehicles and parts was offset by lower receipts at service stations because of cheaper gasoline. There were also price-related declines in outlays of apparel, furniture and other long-lasting manufactured household equipment.
Low layoffs, strong household balance sheets thanks to a stock market rally and high home prices after underpinning spending. Household savings also remain lofty. The saving rate increased to 4.4 percent from 4.1 percent in September. – Reuters
