U.S. consumer, business spending data point to slowing growth

By Reuters

Nov 26, 2014 09:45 PM EST

U.S. consumer spending rose modestly in October and a measure of business spending plans fell for a second straight month, suggesting some slowing in the pace of economic growth.

But other data on Wednesday showed consumer confidence approaching a 7-1/2-year high in November, a reminder of the economy's relative resilience in the face of faltering global demand.

"Momentum is weakening in the fourth quarter. While there is no reason to be pessimistic, it curbs some of the enthusiasm we had seen after the strong growth of the past two quarters," said Thomas Costerg, an economist at Standard Chartered Bank in New York.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.2 percent last month after being flat in September.

The soft figures suggest anemic wage growth continues to weigh on spending, which economists thought would get a lift from falling gasoline prices. Income increased 0.2 percent in October after a similar gain in September.

In another report, the department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, declined 1.3 percent in October for a second straight month.

The drop in so-called core capital goods orders points to an ebbing in the robust pace of spending on equipment in the second and third quarters, and suggests the economy is not fully immune to Japan's recession and cooling growth in China and Europe.

"It reflects companies' increased uncertainty about the impact of slower global growth and stronger dollar on their demand outlook, leaving many to approach capital expenditure plans with increased caution," said Gennadiy Goldberg, an economist at TD Securities in New York.

Core capital goods shipments, which are used to calculate equipment spending in the government's gauge of gross domestic product, fell 0.4 percent, reversing September's gain.

Factory activity in the Midwest slowed in November as new orders fell sharply, another report showed.


The data suggest growth has braked from the third quarter's brisk 3.9 percent annual rate, with fourth-quarter GDP growth estimates ranging between a 1.4 percent and 3.0 percent pace.

While low gasoline prices have not boosted spending, they are lifting confidence. The Thomson Reuters/University of Michigan's consumer sentiment index hit its highest level since July 2007 in November.

U.S. stocks rose marginally, the dollar fell against a basket of currencies and prices for U.S. Treasury debt rose.

A separate report from the Labor Department showed initial claims for state unemployment benefits rose above the 300,000 threshold last week for the first time since early September.

But the underlying trend remains consistent with a firming jobs market.

Fresh data also showed that the housing sector continued to muddle along in October, with new home sales rising moderately and new contracts to buy previously owned homes falling.

The moderate pace of consumer spending, combined with falling gasoline prices, is keeping inflation under wraps.

The personal consumption expenditures price index rose 1.4 percent in the 12 months through October, Commerce Department data showed. Excluding food and energy, it increased 1.6 percent, the largest gain since December 2012, but still well below the Federal Reserve's target.

Fed officials hope their policy of near-zero interest rates helps lift the gauge up to their 2 percent target.

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