U.S. Economy in Modest Start to Quarter as Consumers Tepid

(Bloomberg) -- The U.S. economy registered a modest start to the fourth quarter as consumers restrained their spending while demand for business equipment unexpectedly jumped, likely providing enough fuel to keep the record-long expansion chugging along.

Purchases, which account for about two-thirds of the economy, rose 0.1% from the prior month after adjusting for inflation. While that exceeded analyst projections for no change, it was the weakest gain since February and reflected a drop in auto demand.

Inflation-adjusted disposable income fell 0.3%, the most since 2015, though that was due to declines in interest and farm income, while wages and salaries posted a solid increase of 0.4%.

The figures indicate a more-tempered pace of household spending heading into the key holiday-shopping day known as Black Friday. Consumers have been fueling growth at a time when companies have been slowing investment, global economies remain feeble and trade policy adds to the uncertainty. At this rate, consumption will cool from the third quarter’s 2.9% pace of gains, which was down from the prior period’s 4.6%.

Nominal consumer spending rose 0.3% in October from the prior month, matching the median estimate of economists in the Bloomberg survey.

“Overall we’re still seeing the consumer in pretty good shape,” said Sarah House, senior economist at Wells Fargo & Co., citing gains in wages and salaries. In addition, “we saw some glimmers of stabilization in the manufacturing sector,” she said.

Inflation remained subdued, giving Federal Reserve policy makers room to ease policy again, though they’ve indicated they’re on hold after three straight interest-rate cuts.

Inflation Subdued

The report showed the Fed’s preferred inflation gauge -- tied to consumption -- rose 0.2% from the previous month and 1.3% from a year earlier, both below projections. Excluding food and fuel, so-called core prices rose 0.1% on the month and a less-than-expected 1.6% from October 2018. The Fed targets 2% annual inflation for the main gauge.

Earlier Wednesday, a separate report showed bookings for commercial equipment excluding aircraft -- a proxy for business investment -- rose 1.2% following two straight declines, while shipments advanced 0.8%. Those were both the largest gains since January and compared with analyst projections for declines.

Other reports showed that gross domestic product expanded an annualized 2.1% in the third quarter, better than the initially reported 1.9% and the prior period’s 2%, while weekly filings for unemployment benefits fell by the most since May.

While the GDP figure suggests the economy is a bit healthier than thought, the revision largely reflected more inventory accumulation, and economists project moderation in fourth-quarter growth. In addition, jobless claims tend to be volatile around the year-end holidays, partly because of difficulties adjusting for seasonal swings.

In a positive sign Wednesday, the Bloomberg Consumer Comfort Index’s gauge of buying conditions in the U.S. advanced last week to 55.3, the highest ever leading up to the first shopping day after the Thanksgiving holiday. But contract signings for previously sold U.S. homes fell in October for the first time in three months.

--With assistance from Chris Middleton, Reade Pickert and Sophie Caronello.

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net

©2019 Bloomberg L.P.