Consumer Spending Rises 0.2%
U.S. consumer spending rose in October and factory output was robust in November, though this growth failed to stoke significant inflation, according to reports Thursday.
Personal spending climbed 0.2% in October while personal incomes rose 0.4%, broadly in line with Wall Street estimates, according to Commerce Department data.
The same report showed an inflation index favored by the Federal Reserve -- personal consumption expenditures excluding food and energy -- rose a tame 0.1%, only half the gain expected by Wall Street.
The personal savings rate, the percentage Americans put away after spending, taxes and interest payments, was negative for the fifth straight month at minus 0.7% in October.
U.S. factories responded to robust consumer demand by ramping up activity, with the Institute for Supply Management’s measure of national manufacturing dropping to 58.1 in November from 59.1. However, the figure was still above the 50 mark that points to expansion in the sector.
The data suggested economic growth was running along at a pretty decent clip in the fourth quarter, after chalking up an impressive 4.3% rate of expansion in the third quarter. “The underlying growth numbers look pretty solid,” said Alan Ruskin, research director at 4Cast Ltd.
Meanwhile, the Bush administration Thursday issued a slightly more optimistic forecast for the country’s economic growth this year.
The White House is predicting that gross domestic product will grow by 3.5% as measured from the fourth quarter of last year to the fourth quarter of this year, said White House Press Secretary Scott McClellan.
That’s up a tad from the administration’s previous estimate, made in the summer. It was set at a 3.4% increase at that time.
On the inflation front, the mild 0.1% growth in the core personal consumption expenditures price measure in October shaved 0.2 percentage point off the year-on-year figure, leaving it at 1.8% and suggesting -- to the relief of bond investors -- that the Federal Reserve need be in no rush to push interest rates considerably higher.
“If you look at the last three months, these PCE figures signal that inflation is maybe losing some momentum and calls for just another few more Fed rate hikes in the near term,” said Tim Mazanec, director and senior currency strategist at Investors Bank & Trust in Boston.
The Fed has raised rates 12 times since June 2004, taking short-term interest rates to 4% from 1%, in a bid to head off price pressures. The rate hikes have helped push up mortgage rates, which in turn have sparked a cooling in the U.S.’ 5-year-old housing boom.
A separate report by the Labor Department showed the number of U.S. workers making new jobless claims fell last week to below the levels they were at before huge hurricanes hit the Gulf Coast this year.
Initial claims for state unemployment benefits dropped 17,000 to 320,000, largely in line with Wall Street forecasts.
Before the storms -- Katrina hit in August and Rita in September -- jobless claims figures had shown the U.S. labor market stabilizing at healthy levels.
