For October, U.S. consumer spending was up more than expected while inflation remained flat. Consumer price for the last month showed a decline, which was largely unexpected; however, it will provide some room to Federal Reserve to continue with its current pace of bond purchases. Rise in consumer spending across a range of consumer good signals positive momentum for the U.S. economy in the fourth quarter.
Consumer spending may limit downside risk
According to the data from the Commerce Department, for October, retail sales or core sales excluding automobiles, gasoline and building materials was up 0.5% versus 0.3% in September. Retail sales, which most closely reflect consumer spending, were expected to rise 0.3% by the economists polled by Reuters.
Better numbers of core retail sales indicate that the consumer spending, which touched a two year low in the third quarter, may limit the downside risk to the economy growth, in the coming quarters.
A senior analyst at Moody’s Analytics told Reuters “Overall this suggests the consumers are supporting the current recovery.”
Housing market slowing
On one hand, where consumer spending is showing hopes of better growth, the housing market, which has been driving economic growth, showed signs of slowing down.
As per the data from the National Association of Realtors, sales of existing homes were down 3.2% in October while the median price of the previously owned home increased 12.8% from last year. Rising home values and increasing stock market prices are providing support to the consumer spending.
Inflation may worry officials
In a separate report, from the Labor Department, the Consumer Price Index was down 0.1% owing to a sharp decline in gasoline prices. For September, the index was up 0.2%.
CPI, for a period of twelve months ending October, was up 1%, which is the smallest gain since October 2009. Economist expected the consumer prices to be unchanged for September. Excluding energy and food component, core CPI was up only 0.1%, for the third time in a row.
Core CPI, for the past 12 months, increased 1.7%, which is similar to the last months rise. Low inflation indicates that the Fed may carry on with its monthly $85 billion bond buying program for few more months.
Millan Mulraine, senior economist at TD Securities in New York told Reuters “”The inflation backdrop continues to be supportive to the Fed’s ultra-accommodative policy stance.”