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October consumer spending tepid, saving rises
November 23, 2011 / 1:46 PM / 6 years ago

October consumer spending tepid, saving rises

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.

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

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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