October consumer spending tepid, saving rises

WASHINGTON Wed Nov 23, 2011 8:56am EST

A shoppers walks past a sale sign hanging in a storefront in New York November 22, 2011. REUTERS/Jessica Rinaldi

A shoppers walks past a sale sign hanging in a storefront in New York November 22, 2011.

Credit: Reuters/Jessica Rinaldi

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WASHINGTON (Reuters) - U.S. consumer spending barely rose October as households took advantage of the largest increase in income in seven months to rebuild their savings, a government report showed on Wednesday.

The Commerce Department said consumer spending edged up 0.1 percent, slowing sharply from a revised 0.7 percent increase in September.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.4 percent last month from a previously reported 0.6 percent gain.

When adjusted for inflation, spending nudged up 0.1 percent last month, pointing to a loss of momentum after a relatively strong third quarter, when it grew at an annual rate of 2.3 percent.

Still, that was unlikely to change perceptions of solid economic growth in the current quarter.

Income rose 0.4 percent last month, the largest gain since March. That was a touch above economists' expectations for a 0.3 percent increase and followed a 0.1 percent gain in September.

Taking inflation into account, disposable income rose 0.3 percent, the largest increase since October 2010. It had declined 0.1 percent in September.

A government report on Tuesday showed adjusted for inflation disposable income dropped at an annual rate of 2.1 percent in the third quarter, marking a second straight quarter of declines.

With incomes failing to keep up with inflation amid a 9 percent unemployment rate, households had been saving less in recent months to fund spending. The saving rate increased to 3.5 percent last month from 3.3 percent in September.

Savings rose to annual rate of $400.2 billion from $376.9 billion in September.

But subsiding inflation pressures should ease some of the pressure on incomes. A price index for personal spending fell 0.1 percent rate last month after rising 0.2 percent in September. In the 12 months through October, the PCE index was up 2.7 percent. That was the smallest rise since June and followed a 2.9 percent increase in September.

A core inflation measure, which strips out food and energy costs, nudged up 0.1 percent last month after being flat in September. In the 12 months through October, core PCE rose 1.7 percent after increasing 1.6 in September.

The Federal Reserve would like this measure close to 2 percent.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

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Comments (4)
vippy wrote:
What is it with those headlines. The economy cannot and will not pick up until we read that companies are paying good wages again and not cutting hours.

Nov 23, 2011 3:23pm EST  --  Report as abuse
“…expected spending, which accounts for about 70 percent of U.S. economic activity,”
The 1% better get off their piles of gold and go shopping. No one else in this nation of consumers has any money to spend on anything since the 1% shipped all our jobs to the third world where they could make more proits.

Nov 24, 2011 4:55pm EST  --  Report as abuse
What about the banks? Saving money these days is penalized with fees for holding money by the banks. No interest accrues, only fees accrue. There is no incentive for saving and no disposable income to spend. So what is an average American to do?

Nov 26, 2011 4:33am EST  --  Report as abuse
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