Consumer Spending Rises Despite Stagnant Wages

Consumer Spending
Julio Cortez/AP

WASHINGTON -- U.S. consumers increased their spending in October even though their wages and salaries barely increased, raising questions about how strong the economy will grow at the end of the year.

Consumer spending increased 0.3 percent in October compared with September when spending rose 0.2 percent, the Commerce Department reported Friday. Wages and salaries rose a slight 0.1 percent after a much stronger 1 percent rise in September.

Overall income actually fell 0.1 percent following a 0.5 percent rise in September. But September's gain was inflated by a legal settlement that boosted farm income that month, leading to a big decline in farm income in October.

The personal saving rate dipped to 4.8 percent of after-tax income in October, down from 5.2 percent in September, reflecting the difference between spending and income.

The rise in spending reflected gains in purchases of long-lasting manufactured goods such as autos and gains in spending on non-durable goods such as clothing and services such as rent and utilities.
It meant a solid increase for the first month of the current quarter.

Consumer spending is closely watched because it accounts for 70 percent of economic activity.

The economy grew at a 3.6 percent annual rate from July through September, the fastest since early 2012, but nearly half the growth came from a buildup in business stockpiles, a trend that could reverse in the current quarter and hold back growth. When excluding inventories, the economy grew at a 1.9 percent rate in the third quarter, down from 2.1 percent in the spring. That's in line with the same subpar rate that the economy has seen since the Great Recession ended four years ago.

Many economists believe overall economic growth will dip below 2 percent in the current October-December quarter, in part because a slowdown in inventory building will act as a drag on activity.

But there have been some signs of strength including a separate report Friday showing that the unemployment rate dropped to a five-year low of 7 percent in November as the economy created 203,000 jobs.

In the third-quarter, consumers increased their spending at a tepid 1.4 percent annual rate. That was the slowest since the final quarter of 2009, a few months after the recession officially ended. But the spending activity in the third quarter was held back by flat spending on services. That may have reflected an unusually mild summer, which cut demand for air conditioning. One hopeful sign: Consumers spent on goods at the fastest rate since early 2012.

An inflation gauge closely watched by the Federal Reserve showed prices were flat in October and have risen just 0.7 percent over the past 12 months, well below the Fed's 2 percent target for inflation.

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After a few years of small decreases in the total amount of consumer credit debt owed, that figure is once again getting larger. (If you think the amount of U.S. national debt is a staggering figure, try looking up the amount of total US consumer debt owed. It will make your eyes bug out. Hint: It's a double-digit figure, in the trillions.)

People, who are carrying credit card balances, just don't seem to be able to learn from their past mistakes. They are returning to old shopping habits --- spending every dollar they can get their hands on (plus a lot of dollars they don't actually have by using credit cards).

Granted, being responsible enough to pay off individual consumer debt sure isn't fun. But, it's necessary if you ever want to accumulate any sizeable savings. Nobody ever got rich by paying 18% in interest, every month, on credit cards.

December 08 2013 at 12:50 PM Report abuse rate up rate down Reply

the increase does not even cover inflation. But they are spending on CREDIT-money they don\'t have. Any downturn in the economy and they will be squeezed royally.

December 08 2013 at 12:24 PM Report abuse rate up rate down Reply

Spend more than you make. It's good for the economy...................not.

December 07 2013 at 10:13 PM Report abuse rate up rate down Reply

Being a loyal citizen, I did my part and spent more while making LESS than i did 5 years ago. No doubt about it, things are getting better.

December 06 2013 at 11:43 PM Report abuse +1 rate up rate down Reply
David Hill

Just another pointer to the future bubble that has only one way to go.

Dr David Hill
World Innovation Foundation

December 06 2013 at 12:23 PM Report abuse +2 rate up rate down Reply

WASHINGTON -- U.S. consumers increased their spending in October even though their wages and salaries barely increased...

LOL !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

December 06 2013 at 9:42 AM Report abuse +3 rate up rate down Reply
1 reply to createidea's comment

What is funny about that??? People are raiding what little savings they have to fund their holiday shopping. A bad choice. But, consumer shopping is soooooooo much fun.

December 06 2013 at 12:30 PM Report abuse +1 rate up rate down Reply