Personal spending edged up modestly in October although retailers are hoping that higherand lower energy prices will yield bigger gains during the holiday shopping season.
The Commerce Department reported that personal spending rose by 0.2 percent in October, a slowdown from a 0.5 percent September in increase but better than the 0.5 percent recorded in August. Spending for the past three months has slowed considerably after sizable gains in June and July as consumers rushed to take advantage of attractive discounts that automakers were offering to boost car sales.
Incomes were up 0.4 percent in October after two months in which that indicator of business health had been skewed by the impact of the property destruction caused by hurricanes Katrina and Rita. Economists believe an improving jobs picture will bolster incomes further in the months ahead and put consumers in a shopping mood for the.
In another report, the Labor Department said the number of hurricane-related job losses totaled just 9,600 last week, down significantly from the 21,000 storm-related jobless claims filed the previous week. The new storm claims pushed the total number of Americans who have lost their jobs because of Katrina, Rita and Wilma to 592,000.
The 9,600 storm claims came out of an overall total of 320,000 new claims for unemployment benefits filed last week, a figure that was down by 17,000 from the previous week. This indicates continued improvements in the labor market.
Economists closely watch the performance of consumer spending since it accounts for two-thirds of the total economy. The small 0.2 percent gain for October got the fourth quarter off to a modest start following growth at a sizzling rate of 4.3 percent in the July-September quarter, according to a revised estimate of the gross domestic product released on Wednesday.
Many economists believe thewill slow in the October-December period to between 3 percent and 4 percent, which would still be a solid performance, especially in light of the blows the economy has taken this year from the destruction from the Gulf Coast hurricanes and a surge in energy prices.
An inflation gauge tied to the consumer spending report showed prices, excluding food and energy, rose by just 1.8 percent in the 12 months ending in October, the slowest pace since a 1.6 percent year-over-year rise in February 2004.
This inflation gauge, which is closely followed by officials at the Federal Reserve, should provide assurances that inflation pressures are not getting out of hand.
Consumer spending had posted huge gains of 1 percent in June and 1.4 percent in July as buyers flocked to auto showrooms to take advantage of "employee discount" deals offers by automakers. But spending since that time has been buffeted by a drop-off in auto sales, causing a 0.5 percent drop in spending in August.
Economists are hoping that a retreat in gasoline prices from the record highs set in early September will help lift consumer spirits about purchases for Christmas.
The outlook for the holiday shopping season got a boost earlier this week when the Conference Board reported that consumer confidence rebounded sharply in November, giving hope that Americans will be enthusiastic shoppers despite a mixed start to the shopping season last weekend.
The Conference Board said its Consumer Confidence Index rose to 98.9 this month, well above the 85.2 recorded in October and the highest reading since August.
The income and spending report said that the 0.4 percent rise in incomes in October followed a huge 1.7 percent surge in September and a 1 percent plunge in August. But the August and September figures were heavily influenced by insurance payments from the hurricanes.
Americans' personal savings, a percent of after-tax income, remained in negative territory in October at minus 0.7 percent, the fifth straight month that the savings rate has been in negative territory. This means that people have had to borrow or dip into savings to support their spending.