Economic Report: U.S. consumer spending climbs again in October even as incomes fall flat

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Bloomberg News/Landov

Consumer spending has been the key to a steadily growing U.S. economy.

The numbers: U.S. consumer spending rose in October for the eighth month in a row, a potentially good sign for the holiday shopping season that gets underway after Thanksgiving with Black Friday specials.

Consumer spending increased 0.3% last month, the government said Wednesday. Economists surveyed by MarketWatch had forecast a 0.2% increase.

A key barometer of inflation, meanwhile, rose a few ticks in October. Yet inflation has been muffled for the past year and shows little sign of becoming a problem for the economy.

Read: U.S. consumer confidence falls for the fourth month in a row on labor-market worries

What happened: Americans spent more on natural gas and electricity in October. Outlays on other services also increased.

Consumers spent less on new autos and parts.

In somewhat of a surprise, incomes were were unchanged. Farmers earned less and interest income also declined.

Incomes have only failed to rise four different times in the past five years. Similarly, disposable income (take-home pay after tax) fell last month for the first time since 2015.

Yet by and large, incomes have been rising at a healthy pace and have supported steady consumer spending.

A high savings rate has also provided a cushion for Americans to spend. The savings rate slipped last month to 7.8% from 8.1%, but it’s still relatively high.

The Fed’s preferred “PCE” inflation barometer, meanwhile, rose 0.2% in October.

The index showed prices rising at a meager 1.3% pace over the past year, unchanged from the prior month. That’s still well short of the central bank’s 2% target.

The more closely followed core measure of inflation edged up 0.1% in October. Over the past year it’s risen 1.6%, down a tick from the prior month.

Read: Brainard calls for overhaul in how the Fed sets the level of U.S. interest rates

Big picture: Torrid consumer spending drove the U.S. economy in the spring and summer. Rising incomes and a record stock market are likely to help keep spending on the high side in the final months of the year, but it probably won’t be as strong as it was earlier in the year.

What will also help are low interest rates. The Federal Reserve has cut the cost of borrowing in response to tepid inflation and the threat of lasting damage from the U.S. trade war with China.

What they were saying? “Consumption growth has moderated in the last three months from an extremely strong pace in March through July,” economists at Citibank noted.

Read: It’s great stock market is setting records, but it’s not because the economy is great

Market reaction: The Dow Jones Industrial Average DJIA, -0.02% and S&P 500 SPX, +0.26% were little changed in Wednesday trades, but stock prices remain at or near record highs.

The 10-year Treasury yield TMUBMUSD10Y, +0.79% edged up to 1.77%.