Consumer Spending Jumped in October Amid Softer Inflation
December 1, 2022
American consumers stepped up their spending in the run-up to the holiday season, taking advantage of higher wages and a slight easing of still-high inflation.
Consumer spending jumped by a seasonally adjusted 0.8% in October from the prior month, according to the Commerce Department. That is the strongest monthly gain since June. On an inflation-adjusted basis, spending was up 0.5% in October, the biggest increase since January.
The biggest spending increases were for household essentials like rent and food, as well as new vehicles, which suggests that household budgets are being stretched by inflation. This is further supported by the fact that the personal savings rate fell to the lowest level since 2005.
Wages continued to climb in October, with household incomes climbing 0.7% from the month prior. That is the fastest pace in a year, and though part of that is due to one-time tax credits being issued by states like California and Rhode Island, is also reflects the tight labor market that gives workers leverage to push for pay increases.
The robust spending is unlikely to sway the Federal Reserve, which is widely expected to increase interest rates by a half percentage point at its next meeting, easing slightly from the 0.75-point increases implemented at the previous four meetings. The Fed’s preferred inflation gauge, the personal consumption expenditures index, rose 6% in October from a year prior. That is a slowdown from September’s 6.3% increase, but still a long way from the Fed’s 2% inflation target.