U.S. data points to moderate fourth-quarter growth
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer spending barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter.
Anemic consumer spending did little do change expectations that the Federal Reserve will raise interest rates next month as other data on Wednesday showed a surge in business spending plans in October and a drop in new applications for unemployment benefits last week.
"As far as fourth-quarter GDP goes, that is likely to keep estimates close to 2 percent. That's enough to justify a rate hike as long as next Friday's employment report is not a disaster," said Chris Low, chief economist at FTN Financial in New York.
The Commerce Department said consumer spending edged up 0.1 percent after a similar increase in September. That suggests consumer spending, which accounts for more than two-thirds of U.S. economic activity, has slowed from the third quarter's brisk 3.0 percent annual pace.
The tepid rise in consumer spending could combine with an anticipated drag from an ongoing inventory reduction to hold the economy to around a 2 percent growth rate in the fourth quarter.
But the economy, which expanded at a 2.1 percent pace in the third quarter, could get support from business spending.
In a second report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 1.3 percent last month after rising 0.4 percent in September.
Coming on the heels of data this month showing a solid increase in manufacturing output in October, it suggested the worst of the drag from a strong dollar and deep spending cuts by energy firms was over. Continued...