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WASHINGTON — U.S. consumer spending rose moderately in October, while the annual increase in inflation was the smallest in more than 2½ years, signs of cooling demand that bolstered expectations the Federal Reserve's interest rate-hiking campaign was over.
Those hopes were reinforced by other data on Thursday showing the labor market gradually easing. More Americans applied for unemployment benefits last week and the number on jobless rolls surged to a two-year high in mid-November.
The rise in the so-called continuing claims aligns with anecdotal evidence of slowing demand for labor, though adjusting the data for seasonal fluctuations remains a challenge following an unprecedented surge in applications for unemployment benefits early in the COVID-19 pandemic.
"The data this morning provide more ammunition for (Fed Chair Jerome) Powell and others at the Fed who are looking at an extended hold for policy, rather than an additional rate hike to curb inflation pressures," said Conrad DeQuadros, senior economic adviser at Brean Capital in New York. "There is a hint that searches for a new job by recently laid-off individuals may be taking longer."
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.2% last month after an unrevised 0.7% gain in September, the Commerce Department's Bureau of Economic Analysis said. The increase was in line with economists' expectations.
A 0.4% rise in outlays on services, including health care, housing and utilities as well as international travel, was partially offset by a 0.2% drop in spending on goods like new light trucks, gasoline and other energy products. The decline in light truck outlays was likely the result of shortages caused by the recently ended United Auto Workers strike.
The moderation in consumer spending followed a brisk growth pace in the third quarter and reflects the impact of higher borrowing costs and depleted excess savings among low-income households. Though wages remain elevated, the pace of increase has slowed from earlier in the year as the labor market eases.
Millions of Americans resumed student loan repayments last month, which could crimp spending next year. Personal income rose 0.2% last month after climbing 0.4% in September. Wages edged up 0.1% after shooting up 0.5% in September. The saving rate nudged up to 3.8% from 3.7% in the prior month.
Fears that the economy could slide into recession in early 2024 could see households reluctant to spend and instead build their savings. So far, the economy has defied predictions of a recession, growing at a robust 5.2% annualized pace in the third quarter, the fastest in nearly two years.
Growth estimates for the fourth quarter are mostly below a 2% rate. Most economists expect the economy to settle into a period of very slow growth, and avoid an outright recession.
