Consumers Spend Less Amid Soft Wage Gains | Business News

Consumers Spend Less Amid Soft Wage Gains

31 Oct 2015 | Author: | No comments yet »

Consumer Spending Posts Smallest Gain in 8 Months.

Washington: US consumer spending in September recorded its smallest gain in eight months as personal income barely rose, suggesting some cooling in domestic demand after recent hefty increases. Americans saved more and pulled back on spending heading into the final months of the year amid lackluster income growth and weakening consumer sentiment.Americans increased their spending just 0.1 percent, the Commerce Department said on Friday, the weakest showing since consumers cut spending in January.

The Fed has kept benchmark overnight interest rates near zero since December 2008. “It will be difficult for the Fed to justify a rate hike at a time when income, consumption, and inflation are trending lower, leaving a December rate hike less likely than prior to the data,” said Jay Morelock, an economist at FTN Financial in New York. The overall economy slowed sharply in the July-September quarter to an annual rate of just 1.5%, less than half the 3.9% rate seen in the April-June period.

Against this backdrop, consumer confidence slipped at the end of October, according to the University of Michigan consumer-sentiment index, as wealthier households worried about an erratic stock market. Economists are forecasting that it will remain on track in the fourth quarter, reflecting further gains in employment that should give households more income to spend. Third-quarter growth was constrained by business efforts to whittle down an inventory bloat, a strong dollar and ongoing spending cuts by energy companies. None of the gauges offer a clear signal for Federal Reserve officials, who are monitoring whether the economy is healthy enough to begin raising interest rates for the first time in nearly a decade.

Fed officials “can only be disappointed by the trend in consumption and wage growth coming out of the third quarter,” Steve Blitz, chief economist at ITG Investment Research, said in a note to clients. Fed policy makers will now have to focus on whether the economic data due out in the next six weeks—before their December policy meeting—suggest the trends are improving.

Job gains have slowed in recent months, averaging just 167,000 from July through September, while the unemployment rate held steady at 5.1% in September. Consumer spending growth, however, is unlikely to maintain the brisk pace witnessed in the second and third quarters in the absence of a significant rise in income. Economists believe price and wage increases should gain traction if the economy improves, the labor market tightens and employers compete for a smaller pool of job candidates. In the 12 months through September, the personal consumption expenditures (PCE) price index rose 0.2%, the smallest increase since April, after increasing 0.3% in August.

The employment-cost index, a broad measure of workers’ wages and benefits, rose a seasonally adjusted 0.6% in the third quarter following a springtime slump, the Labor Department said Friday. Excluding food and energy, the so-called core index rose 1.3% from a year earlier, the same pace it has maintained for eight of the past nine months.

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