U.S. personal spending stayed strong in October as price pressures eased

By Geoffrey Smith

Investing.com -- U.S. household spending stayed strong in October amid growing signs that inflation may be easing.

Personal spending rose 0.8% from September, an acceleration from 0.6% in September, and comfortably ahead of a 0.3% rise in the price index for personal consumption expenditures. PCE prices are the Federal Reserve's preferred measure of inflation and the data suggests that the tightening of monetary policy by the Fed over recent months still hasn't stopped U.S. consumers from spending - even if there are increasing signs that they are dipping ever deeper into savings in order to do so: the savings rate fell to 2.3%, the second lowest on record.

Inflation as measured by the PCE prices index has fallen in three of the past four months since peaking in June, and October's increase of 0.3% was below analysts' forecasts for a gain of 0.5%.

After stripping out volatile food and energy components, the ‘core’ PCE price index also rose by less than expected – only 0.2% on the month – bringing the annual core rate down to 5.0% from 5.2% in September.

The numbers broke a sequence of months this year in which spending has failed to keep pace with inflation, and bolstered dwindling hopes that the Federal Reserve can bring inflation down without driving the economy into a recession.

Another sign of the economy's robustness came with a decline in the number of people making initial claims for jobless benefits last week. Initial claims fell to 225,000, from 241,000 the week before. However, continuing claims, a rough proxy for hiring trends, rose by more than expected to 1.608 million, their highest in nine months.

Ryan Sweet, chief U.S. economist with Oxford Economics, wrote in a note to clients that the initial claims numbers - distorted by the Thanksgiving holiday - were "more noise than signal." However, the less volatile four-week average in initial claims continues to signal an extremely tight labor market, despite edging higher to 228,750 from 227,000.

"The tight labor market allows the Fed to continue to increase the target range for the Fed funds rate, and a 50-basis point hike in December appears to be a slam dunk," Sweet said.

The rise in claims over recent weeks has been markedly more gentle than the rise in layoffs visible through anecdotal reports and surveys. The Challenger job cuts survey for October suggested layoffs surged to their highest in two years in October, amid increasingly aggressive cost-cutting by the technology sector in particular. Tech layoffs have tended to affect the better-educated, who have had few problems finding new jobs at a time when there are over 1.7 vacancies for every unemployed person.