US consumer spending barely rose in October as households took advantage of the largest increase in income in seven months to rebuild their savings, a government report showed today.
The Commerce Department said consumer spending edged up 0.1%, slowing sharply from a revised 0.7% increase in September. Economists had expected spending, which accounts for about 70% of US economic activity, to rise 0.4% last month from a previously reported 0.6% gain.
When adjusted for inflation, spending nudged up 0.1% last month, pointing to a loss of momentum after a relatively strong third quarter, when it grew at an annual rate of 2.3%. Still, that was unlikely to change perceptions of solid economic growth in the current quarter.
Income rose 0.4% last month, the largest gain since March. That was a touch above economists' expectations for a 0.3% increase and followed a 0.1% gain in September.
Taking inflation into account, disposable income rose 0.3%, the largest increase since October 2010. It had declined 0.1% in September.
A government report yesterday showed that when adjusted for inflation, disposable income dropped at an annual rate of 2.1% in the third quarter, marking a second quarter of declines in a row.
With incomes failing to keep up with inflation amid a 9% unemployment rate, households had been saving less in recent months to fund spending. The saving rate increased to 3.5% last month from 3.3% in September.
US October durable goods orders fell 0.7%
Business orders for long-lasting manufactured goods fell for a second month in a row in October.
While much of the weakness came from a big drop in demand for commercial aircraft, a key category that tracks business investment spending fell by the largest amount since January.
The Commerce Department says that orders for durable goods fell 0.7% in January following a September decline of 1.5%.
Orders for core capital goods, considered a good proxy for business investment spending, dropped 1.8%, the biggest decline since a 4.8% fall in January.
Manufacturing has been one of the strongest sectors in the economy in this sub-par recovery, but this sector slowed this year as consumer demand faltered and car factories had trouble getting parts following the March natural disasters in Japan.
Moody's keeps US rating, warns on further delay
Moody's today said it was not yet ready to downgrade the US credit rating after the collapse of a deficit-cutting panel, but warned that stymieing automatic cuts could trigger action.
Moody's, which still gives the US the top triple-A credit rating, said the failure of a congressional "supercommittee" to agree $1.2 trillion in deficit reduction "does not change the US fiscal outlook."
That was largely thanks to the presence of controversial automatic cuts triggered by the committee's failure.
But the agency added that ''a change in the composition of the spending cuts would not be a major rating consideration." It warned, however, that any reduction in the overall level of cuts "could have negative rating implications."
