Spending by Consumers Rebounds

Consumer spending rebounded in September and manufacturing activity expanded in October, though at a slower pace than in the previous month, providing further evidence of continued but moderating economic growth on the eve of the presidential election.

Overall, the reports released Monday painted a picture of an economy that was still expanding but not as fast as in the summer. For example, the Commerce Department reported that construction spending was essentially flat in September, a disappointment after big gains of 0.9% in August and July.

And manufacturers, despite the slight expansion in their area, said they were concerned about higher prices for energy and commodities, which were eating into profits.

The Institute for Supply Management reported that its index of manufacturing activity showed continued expansion in October, though at a slower pace than in September. It was the 17th straight month of growth.

The index came in below expectations at 56.8 and also below the reading of 58.5 recorded in September. The indicator remains well above the level of 50 that indicates growth in manufacturing, but it had been above 60 for the first seven months of the year, suggesting that manufacturing growth has been moderating.

“October continued a trend of slower growth, but that should be somewhat expected as manufacturing has experienced three quarters of strong growth so far this year,” said Norbert J. Ore, chair of the institute’s manufacturing survey committee.

The ISM also noted that there was “significant upward pressure” on prices for manufacturers and that higher prices for energy and commodities were “major concerns” for buyers of manufacturing supplies.

Separately, the Commerce Department reported that spending by consumers expanded at a robust rate of 0.6% in September, despite a modest uptick of 0.2% in personal income, as purchases of big-ticket items such as cars soared.

Consumer spending is closely watched by economists because it makes up two-thirds of economic activity.

Spending by consumers had been bumpy in recent months, falling 0.1% in August and rising 1.2% in July. Growth in personal income was much more moderate: 0.2% in September after a 0.3% rise in August.

Meanwhile, the sharp slowdown in construction spending reflected a 0.2% drop in residential construction, the first decline in this category since February 2003. Residential building activity, which still totaled $560 billion at an annual rate, has been red-hot in recent years, reflecting the lowest mortgage rates in four decades.

Gary R. Thayer, chief economist at brokerage firm A.G. Edwards & Sons Inc. in St. Louis, cautioned that the persistent signs of rising prices for manufacturers could mean more pressure on them to pass along higher prices for energy and commodities to consumers.

“Up to this point, you’ve seen some price increases being passed along to consumers, but it’s been moderate,” Thayer said. “I don’t think we’re out of the woods yet with inflation risk. The Fed has been raising rates in a bid to avert inflation, but the seeds of inflation are still there.”

The Federal Reserve has been nudging short-term interest rates higher to stave off inflationary pressures. Thayer said he thought it was likely the Fed would move again to raise rates at its next meeting Nov. 10.