Growth in US consumer spending decelerated as anticipated in October, while the preferred inflation metric continued to rise annually, government data released on Wednesday indicated. Personal consumption expenditures increased by 0.4% last month, as reported by the Bureau of Economic Analysis. This figure aligns with the consensus forecast from Bloomberg but reflects a decrease compared to the 0.6% growth recorded in September. Spending on goods remained unchanged in October, contrasting with a 1% increase the previous month.
This was primarily due to a decline in nondurable goods and a slowdown in the growth of durable goods. Meanwhile, spending on services sustained its monthly growth rate at 0.5%. "Today's report underscores the ongoing resilience of US consumers, with a large income gain and solid consumer spending observed in October," stated Ksenia Bushmeneva, an economist at TD Economics.
"Conversely, inflation has also persisted, eroding real gains on the consumption side." The annual headline Personal Consumption Expenditures (PCE) price index rose to 2.3% last month, aligning with Wall Street's predictions, up from 2.1% in September. Inflation remained stable on a sequential basis at 0.2%, meeting market expectations. The core measure favored by the Federal Reserve, excluding food and energy costs, increased to 2.8% annually in October from 2.7% in September.
This core measure also remained stable, clocking in at 0.3% sequentially, consistent with consensus projections. Scott Anderson, Chief US Economist at BMO, commented, "This report revealed a healthy mix of income and spending growth, with personal savings that should enable steady growth in real consumer spending and the labor market as we approach year-end.
The gradual rise in inflation was largely anticipated and is unlikely to substantially disrupt the market's expectations for a rate cut by the Fed in December." Minutes from the Federal Reserve's latest monetary policy meeting, held on Tuesday, indicated that officials believed it would be appropriate to implement gradual easing of monetary policy if inflation shows signs of cooling while the job market remains robust.
The Federal Open Market Committee reduced its benchmark lending rate by 25 basis points to a range of 4.50% to 4.75%, subsequent to a 50-basis-point cut in September. As of Wednesday, the likelihood of the FOMC reducing interest rates by another 25 basis points in the upcoming month increased to 70%, up from 59% noted on Tuesday, according to the CME FedWatch tool..