Although inflation has accelerated more rapidly in the past year than at any time in more than 30 years, consumer spending in the United States still rebounded strongly by 1.3% in October.
The US Department of Commerce reported on Wednesday that the increase in consumer spending last month was twice that of 0.6% in September.
At the same time, consumer prices have increased by 5% compared to the same period last year, which is the fastest increase in 12 months since the same period that ended in November 1990. This year’s price surge did contribute to a 1.6% increase in spending in November, but after adjusting for inflation, after an inflation-adjusted increase of 0.3% in September, spending still rose steadily by 0.7%.
Personal income, which powers future spending increases, rose 0.5% in October after falling 1% in September, reflecting the decline in government support payments.
As companies desperately need workers, American wages have been rising, and the government’s stimulus checks earlier this year have further enriched their bank accounts. This heralds a strong holiday season. Major US retailers said that some companies such as Wal-Mart and Target are doing their best to ensure that despite the general shortage on shelves, they are ready.
Analysts said that in the first month of the new quarter, expenditures increased steadily in October. This is encouraging evidence that the overall economic growth slowed to a moderate annual growth rate of 2.1% in the third quarter and will be in the current quarter. A substantial rebound will be achieved as long as the recent increase in COVID cases and concerns about inflation will not curb holiday shopping.
In a warning report on Wednesday, the University of Michigan reported that its consumer confidence index fell 4.3 percentage points this month to 67.4, the lowest level since November 2011, dragged down by inflation concerns.
There has been a surge in COVID-19 cases in some parts of the United States, and the situation may get worse as families travel to the country during the Thanksgiving holiday.
Due to short supply, the 5% increase in consumer prices shown in the report on Wednesday continued a series of high readings over the past few months and partly reflected shortages caused by supply chain chaos.
President Joe Biden took action on Tuesday to respond to the soaring gasoline prices by ordering the release of the National Strategic Petroleum Reserve, but economists expect this will have little impact on the soaring gasoline prices.
The data released on Wednesday, including understanding what Americans pay for daily necessities, is the Fed’s first choice because it tracks changes in people’s purchases, which is different from the consumer price index, which measures a fixed basket of goods.
The Fed seeks to implement its interest rate policy to achieve an annual increase of about 2% in its preferred price index. However, in the past two decades, inflation has not reached the Fed’s 2% inflation target.
Fed officials announced at the November meeting that they would begin to reduce the $120 billion monthly bond purchase program. The Fed has been applying downward pressure on long-term interest rates through these programs.
This marks the first time the Fed has taken measures to recover the substantial support it has been providing to the economy. Economists predict that the Fed will raise its benchmark interest rate in the second half of 2022, which will affect millions of consumer and business loans. Since the 2020 pandemic, this rate has been at a historical low of 0% to 0.25%.
If inflation continues to exceed the Fed’s target, which Fed Chairman Jerome Powell has described as temporary for months, then economists will accelerate the reduction in the possibility of the Fed’s monthly bond purchases and its first interest rate hike earlier. The possibility of action will increase.
The expenditure and income report released on Wednesday showed that consumer purchases of durable goods such as automobiles increased by 3.3% in October, while spending on non-durable goods such as clothing increased by 1.6%. Service spending increased by 0.9% in October.
Due to spending higher than income, the personal savings rate fell to 7.3% in October from 8.2% in September, but it was still at a relatively high level.