U.S. consumers increased their spending in October even though their wages and salaries barely increased, raising questions about how strong the economy will grow at the end of the year.
Consumer spending increased 0.3 percent in October, compared with a 0.2 percent increase in September, the Commerce Department reported Friday. Wages and salaries rose a slight 0.1 percent, after a much stronger 1 percent rise in September.
Overall income actually fell 0.1 percent, following a 0.5 percent rise in September. But September’s gain was inflated by a legal settlement that boosted farm income that month, leading to a big decline in farm income in October.
The personal saving rate dipped to 4.8 percent of after-tax income in October, down from 5.2 percent in September, reflecting the difference between spending and income.
The rise in spending reflected gains in purchases of long-lasting manufactured goods, such as autos; and gains in spending on non-durable goods, such as clothing, and services, such as rent and utilities. It meant a solid increase for the first month of the current quarter.
Consumer spending is closely watched, because it accounts for 70 percent of economic activity.
The economy grew at a 3.6 percent annual rate from July through September, the fastest since early 2012, but nearly half the growth came from a buildup in business stockpiles, a trend that could reverse in the current quarter and hold back growth. When excluding inventories, the economy grew at a 1.9 percent rate in the third quarter, down from 2.1 percent in the spring. That’s in line with the same subpar rate that the economy has seen since the Great Recession ended four years ago.
Many economists believe overall economic growth will dip below 2 percent in the current October-December quarter, in part because a slowdown in inventory building will act as a drag on activity.
But there have been some signs of strength, including a separate report Friday showing that the unemployment rate dropped to a five-year low of 7 percent in November as the economy created 203,000 jobs.
In the third quarter, consumers increased their spending at a tepid 1.4 percent annual rate. That was the slowest since the final quarter of 2009, a few months after the recession officially ended. But the spending activity in the third quarter was held back by flat spending on services. That may have reflected an unusually mild summer, which cut demand for air conditioning.
Consumers spent on goods at the fastest rate since early 2012.
An inflation gauge closely watched by the Federal Reserve showed prices were flat in October and have risen just 0.7 percent over the past 12 months, well below the Fed’s 2 percent target for inflation.