Shoppers Spend More Despite Stagnant Pay

From Reuters

Consumers spent more in October ahead of the holiday sales season, the government said Friday, amid hopes for a jolly Christmas for retailers.

Spending rose 0.5% in October to a seasonally adjusted annual rate of $5.20 trillion, the Commerce Department said. That followed a slight 0.1% increase in September.

The rise in spending, after a slack summer, came despite incomes that were unchanged in October after rising 0.6% in September.

Coupled with earlier reports showing robust consumer confidence, some analysts said the faster pace of spending in October buoyed chances for stronger retail sales and a modest pickup in fourth-quarter economic growth.


“I think the numbers are pointing to a consumer who is going to be showing a good deal of enthusiasm for Christmas shopping,” said economist Lynn Reaser of Barnett Banks Inc. in Jacksonville, Fla.

With consumer spending fueling two-thirds of national economic activity, chances for a rebound in growth from the third quarter’s tepid 2% annual rate could depend on shoppers’ behavior in coming to shop for the holidays.

“Today will give us a critical reading on spending and therefore on how fourth-quarter GDP is going to perform,” Reaser said, referring to gross domestic product, the broadest measure of the nation’s economy.

“It may also tell us the direction of long-term interest rates and whether the bond market has peaked or whether a slow-growth mode will continue,” she said.

Bond yields fell in light trading, with the yields on the 30-year Treasury falling to 6.36% from 6.43% on Wednesday. Bond prices and yields move in opposite directions. Stock prices also rose.

Flat October incomes reflected a slower growth in the job market and reduced overtime in some industries such as autos, where production and sales have been relatively slow.

The department said incomes from wages and salaries fell $8.9 billion in October after climbing $28.2 billion in September. Incomes were lower for employees in manufacturing, distribution industries and other companies.

“In October, a decline in average weekly hours more than offset an increase in employment,” the department said. “Average hourly earnings were unchanged.”

Robert Dederick, an economic consultant to Northern Trust Co. in Chicago, said he was not impressed by the spending pickup in October and said the jury remains out on whether a summer spending lull was really ending.

“We are left with the question of whether the consumer is going to continue to be a sluggard or not,” Dederick said, adding he thought prospects were for modest economic growth of 2% to 2.5% in the year’s closing quarter.

While a slow rate of growth might not cheer shopkeepers, it would help keep the Federal Reserve from raising interest rates, Dederick added.

Fed Governor Laurence Meyer was quoted Friday as saying in an interview to be published in BusinessWeek that he foresees slower growth but no recession ahead. He said fewer purchases of costly durable goods would hold economic growth under a 2% annual rate in coming quarters.

“We’re beginning to see signs that consumers are a little stretched out, but not enough to push us into a downturn,” Meyer was quoted as saying.

Last month’s spending rise was broadly based, with purchases of long-lasting durable goods like refrigerators and televisions up 0.4% from September. Spending on nondurables grew 0.3%.

The biggest gain came in purchases of services, which increased 0.7%.

During October, only 5.2 cents out of each dollar earned went into savings, down from 5.6 cents in September.


Holiday shoppers packed Southern California malls Friday. A1


A Boost in Spending

Despite flat income, consumer spending rose in October. Personal income and spending, seasonally adjusted at annual rate, in trillions of dollars:


October 1996: $6.54


October 1996: $5.20

Source: Commerce Department