(Bloomberg) -- Personal spending increased at a more moderate pace in October after the biggest gain in five months, while faster income growth signaled demand will be sustained.
Purchases rose 0.3 percent after a 0.7 percent September advance that was stronger than first estimated, Commerce Department figures showed Wednesday. The median forecast in a Bloomberg survey called for a 0.5 percent advance in October. Incomes jumped 0.6 percent, the most since April.
Consistent job growth, projected to be reinforced with Friday's report on November payrolls, and a firming up of wages are allowing households to spend a little bit more freely. The report also showed the Federal Reserve's preferred inflation gauge climbed to the highest since October 2014.
“The income number was pretty solid, and consistent with what we've seen in the recent employment data,” said Tom Simons, an economist at Jefferies LLC in New York. Fed officials, who are mandated by law to pursue maximum employment and stable prices, are “looking at the most recent data with regard to the dual-mandate goals and they're pretty confident that the economy is ready for one more rate hike, at least,” he said.
Projections for consumer spending in the Bloomberg survey ranged from gains of 0.2 percent to 0.7 percent. The previous month's reading was initially reported as a 0.5 percent advance.
Wages rose 0.5 percent in October for a second month, exceeding the 0.4 percent median forecast. The gain in worker pay helped propel income growth after a 0.4 percent increase in September that was more than previously reported.
The personal spending report showed the price index tied to consumer purchases increased 0.2 percent for a third month in October. It rose 1.4 percent from a year earlier. This inflation gauge is preferred by Fed policy makers and, while making progress, hasn't met their 2 percent goal since April 2012.
Disposable income, or the money remaining after taxes, rose 0.4 percent in October from the prior month after adjusting for inflation, the strongest advance this year. The saving rate increased to 6 percent from 5.7 percent in September.
After adjusting for inflation, in order to generate the figures used to calculate gross domestic product, purchases increased 0.1 percent last month after a 0.5 percent advance in September that was stronger than initially estimated, Wednesday's report also showed.
Household outlays on services decreased 0.3 percent after adjusting for inflation, revealing a shortfall in utility use. Last month marked the warmest October since 1963, according to the National Oceanic and Atmospheric Administration.
The services category, which also includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.
Inflation-adjusted spending on durable goods rose 1 percent in October after a 2.6 percent surge. Purchases of non-durable merchandise increased 0.8 percent, the most since April.
Stripping out the volatile food and energy categories, the PCE price measure climbed 0.1 percent for a second month, and 1.7 percent in the 12 months ended in October.
Fed officials are broadly expected to raise their benchmark interest rate in December for the first time this year as they monitor still-solid labor-market gains and hints of firming price growth.
To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net. To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
