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US Consumer Spending Rose in October While Incomes Declined

Person holding shopping bags in each hand, from luxury stores Dior, Chanel and Louis Vuitton.
A customer carries shopping bags from Louis Vuitton, Chanel and Christian Dior. Getty. (Getty Images)

US household spending rose more than expected in October while incomes declined, indicating consumers may have less wherewithal to keep driving the economy amid a surging coronavirus and lack of fresh government aid.

Purchases increased 0.5 percent from the prior month, following a 1.2 percent gain in September, a Commerce Department report showed Wednesday. That compared with estimates for a 0.4 percent increase. Personal incomes dropped 0.7 percent, a larger decrease than forecast, owing in large part to a decline in government supplemental jobless benefits.

The report follows data earlier Wednesday showing applications for US state unemployment benefits unexpectedly rose for a second straight week in the first back-to-back increase since July.

The personal savings rate, which had surged to a record in April as a result of the rise in government social benefits, fell for a sixth month to 13.6 percent, though it remains elevated compared with pre-virus levels.

While large parts of the economy remain handcuffed by Covid-19 and Congress has been deadlocked for months on providing more aid to businesses and jobless Americans, savings and a recovering job market have helped support a rebound in spending, which makes up two-thirds of the economy. But the recent surge in coronavirus cases could deter purchases, especially of services, while renewed restrictions on businesses in some states may spur job losses.

Also, without congressional action, two pandemic jobless benefit programs are set to expire at the end of December, affecting an estimated 12 million people.

The latest report reflected the winding-down of a separate stopgap program authorized by President Donald Trump in August. The October income data “reflected a decrease in Lost Wages Supplemental Payments, a Federal Emergency Management Agency program that provides wage assistance to individuals impacted by the pandemic,” according to the Commerce Department.

Adjusted for inflation, real consumer spending rose 0.5 percent in October following a 1.1 percent increase in September. The increase included gains in a category that spans computers and software, while spending on health care -- particularly at hospitals — helped boost outlays on services.

The report showed wages and salaries rose 0.7 percent in October, reflecting stronger-than-expected hiring in the month.

While the Federal Reserve will seek inflation that averages 2 percent over time, current gauges of consumer prices are well below that 2 percent target and decelerated for the first time in six months.

The index of consumer prices that the Fed officially uses for its target rose 1.2 percent in October from a year earlier. The core price index, which excludes more-volatile food and energy costs, increased 1.4 percent.

By Reade Pickert.

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