The US economy showed signs of resilience in early Q4, with consumer spending increasing 0.4% in October and inflation staying above the Federal Reserve’s 2% target. Despite this, progress on lowering inflation appears to have stalled.
Consumer spending accounts for over two-thirds of US economic activity and rose more than expected last month. Adjusted for inflation, spending edged up 0.1%, consistent with a roughly 2.5% annualized growth rate this quarter. The Atlanta Fed forecasts gross domestic product increasing at a 2.7% rate in the fourth quarter.
The surge in consumer spending was driven by strong demand for services, including healthcare, housing, and utilities, as well as transportation and recreation. Goods outlays were unchanged, with an increase in purchases of motor vehicles offset by lower receipts at service stations due to cheaper gasoline.
In contrast, business spending on equipment appeared to soften, with core capital goods orders dropping 0.2% in October. Economists warn that this could signal a decline in investment plans.
The lack of success in bringing inflation back to the Federal Reserve’s target and the prospect of higher tariffs on imported goods from President-elect Donald Trump’s administration may narrow the scope for interest rate cuts next year. Despite this, labor market slack could outweigh concerns about higher inflation readings.
Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 213,000, the lowest level since April. However, continued claims data showed that many laid-off workers are finding it difficult to land new jobs, indicating a lingering labor market slack.
Source: https://www.reuters.com/markets/us/us-consumer-spending-increases-solidly-october-inflation-stays-elevated-2024-11-27