US personal income and consumer spending surpassed growth estimates last month, growing 0.5% in October instead of the projected 0.4%, with a 0.2% jump seen the month prior.
Key Takeaways
- The Commerce Department reported that consumer spending jumped 0.6% in October with increased spending on prescription medication and utilities partially accounting for the jump.
- The 0.6% jump is the largest increase in seven months.
- Underlying price pressures slowed down with a Federal Reserve-tracked inflation measure registering its smallest annual increase since February.
Consumer spending accounts for two thirds of all US economic activity, making the 0.6% increase all the more significant. Adjusted for inflation, the figure is 0.4%, which is still the biggest increase in seven months after September’s initial reading of 0.4% was revised to 0.2%.
Personal Income rose 0.5% in October, as Consumer Spending rose 0.6%. People were making more and spending more!
— Mike Bjork (@MikeBjork) November 29, 2018
Economic Growth May Be Slowing
While the increase in personal income and consumer spending is a positive boost for the economy, there are signs of an overall slowdown underway with a moderating trend in business spending on equipment as well as a negative trend in the trade deficit and a general decline in the housing industry.
Growth estimates for the fourth quarter are currently in the region of 2.5% GDP growth compared to 3.5% the previous quarter.
Inflation Under Control
The slowdown may be offset in time by the potential of a reversal or moderation in the Fed’s monetary policy regarding inflation on the horizon.
While the Federal Reserve is still expected to roll out another rate hike this year, the recent announcement by chairman Jerome Powell that inflation is nearing neutral territory may influence policy for next year with four rate hikes initially planned compared to only two deemed necessary by market analysts.
It’s too soon to say whether the near-neutral inflation rate will influence the policy, although even the announcement of it caused stocks to skyrocket yesterday.
Expert Outlook
"Real consumption increased by a strong 0.4% m/m in October which means that, even allowing for the downward revisions to the gains in preceding months, fourth-quarter consumption growth should be in excess of 3.0% annualized," said Paul Ashworth, Chief U.S. Economist at Capital Economics.
"That is a little stronger than we had previously anticipated. So, after also factoring in the stronger inventory data and third-quarter GDP revisions published yesterday, we are raising our fourth-quarter GDP growth forecast to 2.7%, from 2.3%."
Market Reaction
Gold price saw moderate fluctuation today with a daily high of $1,228.04/oz and a daily low of $1,220.42, currently trading at $1,226.33 at the time of writing. Meanwhile December Comex Futures are trading at $1,225.90/oz with a 0.19% increase on the day.
Gold Price Chart
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