U.S. incomes, spending rise modestly Core inflation trend falls to lowest in nearly two years

Market watch ^ | 12/01/05 | Rex Nutting

[Sonny M]

WASHINGTON (MarketWatch) - U.S. personal incomes and spending rose modestly in October while inflationary pressures eased, the Commerce Department estimated Thursday.

Personal incomes increased 0.4% in October, as expected, after a 1.7% gain in September that was skewed by the impact of Hurricane Katrina.

Nominal spending increased 0.2% in October, as expected by the survey of economists conducted by MarketWatch. See Economic Calendar.

Real (inflation-adjusted) spending increased 0.1% in October, the first increase in three months. Real spending had declined 0.4% in September. Read the full report.

Real consumer spending "is now on track for the weakest quarterly performance since the 1991 recession," said Sherry Cooper, chief economist for BMO Nesbitt Burns. But Goldman Sachs chief economist Bill Dudley said he expects consumer spending to bounce back in the final two months of the quarter.

Consumer prices rose 0.1% in October after soaring 0.9% in September. Prices have risen 3.3% in the past year, compared with a 3.7% rate in September.

The core personal consumption expenditure price index increased 0.1% in October, bringing the year-over-year increase down to 1.8% from 2% in September. It's the smallest year-over-year gain since February 2004.

Fed officials have said they want core inflation to remain between 1% and 2%.

The tame inflation numbers were greeted on Wall Street, with stocks enjoying broad-based gains. Treasury prices rose, as did gold futures.

"The economic numbers this morning certainly eased inflationary fears, lessening the fear of an overheating economy," said Peter Cardillo, chief market analyst at S.W. Bach. See Market Snapshot.

Even with inflationary pressures moderating, the Federal Reserve is likely to bank at least a couple more interest rate hikes in the next few months as insurance against a breakout of inflation, economists say.

The Fed's policy committee will meet on Dec. 13 to consider a 13th consecutive quarter-percentage point increase in the federal funds target rate to 4.25%. Read more about the Fed.

In separate reports released Thursday, the Institute for Supply Management said its November factory sentiment index slipped slightly to 58.1% from 59.1%, still a very robust reading. See full story.

The Office of Federal Housing Enterprise Oversight said average U.S. home prices increased 2.8% in the third quarter and are now up 12% in the past year, a slight deceleration from the 13.4% annual trend seen in the second quarter.

In a separate report, the Labor Department said initial claims for unemployment benefits fell 17,000 to 320,000 last week. See full story.

Finally, the Commerce Department said construction outlays rose 0.7% in October behind strong spending by home builders and state and local governments. See full story.

Incomes from wages and salaries increased 0.6% in October, the biggest gain in three months. Proprietors' income fell 0.2% after soaring 4.8% in September. Income from assets rose 0.6%, including a 1% rise in income from dividends.

Real spending on durable goods fell 2.5% in October, the third straight decline. Spending on nondurable goods increased 1.1%, while spending on services increased 0.1%.

Disposable incomes (after taxes) increased 0.3% in October. After adjusting for inflation, disposable incomes rose 0.2%. In the past year, real disposable incomes are up 0.9%.

With incomes rising faster than spending, the personal savings rate improved to negative 0.7% from negative 0.8%, showing that Americans spent more than their disposable incomes for the fourth straight month.

The lowest savings rate since the Great Depression was reached in August at negative 2.2%.

Rex Nutting is Washington bureau chief of MarketWatch.

[Sonny M]

For your comments and analysis.

Interesting article about wage growth.

[pissant]

Worst economy since Hoover, according to KerryDeanHillaryEdwardsKennedyPelosi....

[earplug]

Last I checked Gold is over $511.00
I don't trust the government supplied figures.

[RipSawyer]

Last I checked Gold is over $511.00
I don't trust the government supplied figures.>>>>>>>>

I am amazed that anyone trusts the government's figures.