 Fred Harteis
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Harteis Business Insights: Commerce Dept Report : Income and Spending Up
by Fred Harteis
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The latest report from the Commerce department was better than economists were expecting. American consumers increased spending again in October, an encouraging sign that the final quarter of 2004 is getting off to a decent start. Plus, incomes rose sharply.
The Commerce Department reported Wednesday that consumer spending went up by 0.7 percent in October, up from 0.6 percent rise in September and the best showing since July.
Marking the biggest increase since May, Americans' incomes by 0.6 percent in October as the employers added significantly to payrolls. Increases in income are often seen as forecast of future spending.
Economists were forecasting a 0.4 percent rise in spending, so they were off by more than 50 percent.
"Consumers were not deterred by higher oil prices and by consumer confidence numbers that keep on going lower," said Ken Mayland, president of ClearView Economics. "I got to believe this gets the fourth quarter off on very solid footings."
The spending and income figures are not adjusted for price changes.
When adjusted for inflation, consumer spending rose by a more moderate - but still healthy - 0.3 percent in October.
The Federal Reserve, wanting to make sure inflation doesn't become a problem for the economy, has boosted short-term interest rates four times this year. Economists expect another increase on Dec. 14.
An inflation gauge tied to the consumer spending and income report showed that inflation is picking up. Prices rose by 0.4 percent in October, up from a tiny 0.1 percent increase in September.
The economy grew at a solid 3.9 percent pace in the third quarter as consumers and businesses spent more freely. Some analysts believe growth in the current October-to-December quarter could slow a bit, while others believe it could be slightly stronger.
Consumer spending accounts for roughly two-thirds of all economic activity in the United States. So, their buying actions is an important factor in determining the strength of US economic growth.
What people are buying: Spending on nondurable goods, such as food and clothing, jumped by 1.5 percent in October, compared with a 0.8 percent increase in September.
The Bush administration credited the president's tax cuts with helping the economy rebound.
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