Consumer spending in the U.S. rose 0.5 percent in October while household income declined 0.7 percent, according to a report released by the Bureau of Economic Analysis (BEA) on Wednesday (Nov. 25).
The drop in income is more than what forecasters anticipated, largely because of a loss in unemployment benefits. Spending surpassed expectations but was lower than September’s spending increase of 1.2 percent.
Factory orders for durable goods went up 1.3 percent, while sales of newly-built homes dipped. New home sales are still at the highest level in nearly 14 years.
Real personal consumption expenditures (PCE) increased $63.5 billion, with $12.7 billion going toward goods and $48.7 billion for services.
“There’s much more momentum than we had presumed,” Pooja Sriram, U.S. economist at Barclays, told The Wall Street Journal. “The real question we’ve been asking ourselves is, is this momentum sustainable?”
Economists are expecting that fourth quarter growth will decelerate, with IHS Markit anticipating output expansion of 5.7 percent October through December.
Jobless claims are down from a high of 7 million at the end of March, but are still more than in other recessions. Peak unemployment prior to COVID-19 was 695,000 in 1982. Records date to 1967.
Personal savings are down 13.6 percent, the sixth consecutive month of declines but still higher than pre-pandemic levels. Savings escalated in April because of pandemic stimulus payments.
About 12 million people will lose unemployment the day after Christmas when pandemic unemployment programs end.
The consumer price index went up 1.2 percent in October from 2019. The core price index went up 1.4 percent.
The economy overall has been rebounding due to elevated consumer spending, which accounts for more than two-thirds of economic activity in the U.S. The Consumer Confidence Index fell in November after holding steady in October.