US consumers’ income and spending show a steady rate of growth

Market - Himanshu Gill - Dec 02,2016

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us consumers income and spending show a steady rate of growth

American consumers’ incomes and household spending increased at a solid pace for the second straight month in October, suggesting consumers can support economic growth in the year’s final months.

The consumer spending, which accounts for about 70 percent of U.S. economic activity increased 0.3 percent after an upwardly revised 0.7 percent gain in September, according to the data released by the Commerce Department of the US.

Spending in the month of September was previously anticipated to increase at a rate of 0.5% and a sudden rise have raised speculations of a similar boom. Economists had earlier forecasted consumer spending would rise at rate of 0.4% in October. This month also saw a 0.2% drop in consumer’s spending on services.

The increase in incomes, however, showed a better boost of 0.6 percent, the best showing since April this year. September’s rise in incomes had stood at 0.4 percent. Savings increased to $860.2 billion from $814.1 billion in September. That was the highest level since March this year.

The government reported on Tuesday said that, Gross Domestic Product (GDP) displayed a healthy rate of increase at 3.2 percent in the third quarter, driven by strong consumer spending and a surge in soybean exports.

With consumer spending increasing continuously, inflation continued to gain steadily. The inflation gain was at its highest pace since prices had risen 1.5 percent for the 12 months ending in October 2014. The personal consumption expenditures (PCE) price index rose 0.2 percent for October after a similar increase in September. PCE is still running below its 2% target and it is considered the Federal Reserve’s preferred tool for measuring inflation.

A firm inflation rate and strengthening US economy aided by rising jobs, incomes and a surge in dollar’s value, has encouraged speculations on the Fed to raise interest rates in the month of December.