Data Point to Moderate Fourth-Quarter Growth

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FILE - In this March 13, 2015, file photo, a worker inspects a new 2015 aluminum-alloy body Ford F-150 truck at the company's Kansas City Assembly Plant, in Claycomo, Mo. The Commerce Department releases its October report on orders for durable goods, items expected to last at least three years, on Wednesday, Nov. 25, 2015. (AP Photo/Charlie Riedel, File)
Charlie Riedel/AP
By Lucia Mutikani

WASHINGTON -- Consumer spending barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter.

Anemic consumer spending did little do change expectations that the Federal Reserve will raise interest rates next month as other data released Wednesday showed a surge in business spending plans in October and a drop in new applications for unemployment benefits last week.

%VIRTUAL-pullquote-As far as fourth-quarter GDP goes, that is likely to keep estimates close to 2 percent. That's enough to justify a rate hike as long as next Friday's employment report is not a disaster.%"As far as fourth-quarter GDP goes, that is likely to keep estimates close to 2 percent. That's enough to justify a rate hike as long as next Friday's employment report is not a disaster," said Chris Low, chief economist at FTN Financial in New York.

The Commerce Department said consumer spending edged up 0.1 percent after a similar increase in September. That suggests consumer spending, which accounts for more than two-thirds of U.S. economic activity, has slowed from the third quarter's brisk 3 percent annual pace.

The tepid rise in consumer spending could combine with an anticipated drag from an ongoing inventory reduction to hold the economy to around a 2 percent growth rate in the fourth quarter.

But the economy, which expanded at a 2.1 percent pace in the third quarter, could get support from business spending.

In a second report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 1.3 percent last month after rising 0.4 percent in September.

Coming on the heels of data this month showing a solid increase in manufacturing output in October, it suggested the worst of the drag from a strong dollar and deep spending cuts by energy firms was over.

Fed officials had held off raising rates at their last two meetings as they assessed the degree to which dollar strength and a slowing in economies overseas would weigh on the United States.

"The surge in core capital goods orders could be a crucial signal that this important sector of the economy may be at a turning point, further bolstering the Fed's confidence in the sustainability of the economic recovery," said Millan Mulraine, deputy chief U.S. economist at TD Securities in New York.

Manufacturing, which accounts for 12 percent of the economy, has been slammed by the buoyant dollar and energy sector spending cuts. The greenback has gained 18.1 percent against the currencies of the United States' main trading partners since June 2014.

The pace of appreciation, however, is gradually slowing. Economists also believe that the bulk of spending cuts by oil field firms such as Schlumberger (SLM) in response to lower crude prices have already been implemented.

U.S. Treasury debt prices rose modestly, while the dollar hit an eight-month high against a basket of currencies. U.S. stocks were flat.

Wages Rising

Economists say rising rents and medical costs are diverting money from discretionary spending. While consumer sentiment increased in November from October, households continued to fret over their financial prospects, another report showed.

But as the labor market continues to tighten, there is optimism that wage growth will pick up and encourage consumers to loosen their purse strings and boost spending.

A fourth report from the Labor Department showed first-time applications for state unemployment benefits declined 12,000 to a seasonally adjusted 260,000 for the week ended Nov. 21.

Claims have now held below the 300,000 threshold for 38 consecutive weeks, the longest stretch in years, and are near levels last seen in 1973.

Strengthening labor market conditions are gradually lifting income. The Commerce Department said personal income increased 0.4 percent last month after rising 0.2 percent in September. Wages and salaries shot up 0.6 percent, the largest gain since May.

Savings increased to $761.9 billion, the highest level since December 2012, from $722.9 billion in September. Higher savings could over time buoy consumer spending.

There was still no sign of inflation, which has persistently run below the Federal Reserve's 2 percent target.

A price index for consumer spending rose 0.2 percent in the 12 months through October after a similar rise in September. Excluding food and energy, the personal consumption expenditures price index was up 1.3 percent for the 10th straight month.

In another report, the Commerce Department said new homes sales jumped 10.7 percent in October, which could allay concerns of a significant slowdown in housing.

9 Numbers That'll Tell You How the Economy's Really Doing
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Data Point to Moderate Fourth-Quarter Growth
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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