U.S. Consumer, Business Spending Point to Slowing Growth

Durable Goods
Paul Sancya/APFord F-150 production in Dearborn, Michigan.

By Lucia Mutikani

WASHINGTON -- U.S. consumer spending rose modestly in October and a key measure of business spending plans fell for a second straight month, suggesting some slowing in the pace of economic growth.

But the economy remains resilient in the face of faltering global demand. Other data on Wednesday showed consumer confidence approaching a 7-1/2-year high in November and new home sales rising for a third straight month in October.

"We think growth will moderate in the fourth quarter. I'm not reading anything incredibly negative into this," said Michael Gapen, a senior economist at Barclays in New York.

Consumer Spending Up Just a Bit

The Commerce Department said consumer spending, which makes up more than two-thirds of U.S. economic activity, increased 0.2 percent last month after being flat in September. Still, the steady gains in consumer spending, supported by falling gasoline prices, should help to prop up growth in the fourth quarter.

%VIRTUAL-WSSCourseInline-876%In a second report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, declined 1.3 percent last month. That followed a 1.3 percent fall in September. The drop in the so-called core capital goods orders suggested that a sturdy pace of spending on equipment set in both the second and third quarters ebbed early this quarter.

The lackluster reports suggest growth has moderated from the third quarter's brisk a 3.9 percent annual rate. Fourth quarter GDP estimates range between a 1.4 percent and 3.0 percent rate.
There is, however, reason for optimism. The Thomson Reuters/University of Michigan consumer sentiment index rose to 88.8 this month, the highest reading since July 2007, from 86.9 in October.

A third report from the Commerce Department showed single- family home sales gained 0.7 percent to a seasonally adjusted annual rate of 458,000 units in October.

The dollar was trading near session lows against the euro on the data, while prices for U.S. Treasury debt rose. U.S. stocks were trading lower.

Increased Caution

Core capital goods shipments, which are used to calculate equipment spending in the GDP measurement, fell 0.4 percent last month, reversing September's gain.

"We believe that the slowing in orders reflects companies' increased uncertainty about the impact of slower global growth and stronger dollar on their demand outlook, leaving many to approach capital expenditure plans with increased caution," said Gannadiy Goldberg, an economist at TD Securities in New York.

A separate report showed the Institute for Supply Management-Chicago Business Barometer declined to 60.8 this month from 66.2 in October.

Jobless Claims Grew, Too

A sixth report from the Labor Department showed initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 313,000 for the week ended Nov. 22.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, remained below 300,000 for an 11th straight week, a sign that the jobs market was improving.

Despite better labor market conditions, income growth remains tepid. Income rose a modest 0.2 percent in October after a similar gain in the prior month, the Commerce Department report on consumer spending showed. With income growth matching consumer spending, the saving rate was unchanged at 5.0 percent.

The moderate pace of consumer spending, combined with falling gasoline prices, kept inflation under wraps. A price index for consumer spending edged up 0.1 percent after a similar gain in September.
In the 12 months through October, the personal consumption expenditures price index rose 1.4 percent after advancing by the same margin in September.

Excluding food and energy, prices rose 0.2 percent after gaining 0.1 percent in September. The so-called core PCE price index increased 1.6 percent in the 12 months through October, the largest gain since December 2012.
Both price measures continue to run below the U.S. central bank's 2 percent inflation target.