U.S. consumer spending rose in October and factory output also was robust in November, though this growth failed to stoke significant inflation, according to reports on Thursday.
Personal spending climbed 0.2 percent in October while personal incomes rose 0.4 percent, broadly in line with Wall Street estimates, according to a Commerce Department data. The same report showed an inflation index favored by the Federal Reserve -- personal consumption expenditures excluding food and energy -- rose a tame 0.1 percent, only half the gain expected by Wall Street.
The personal savings rate, the percentage Americans put away after spending, taxes and interest payments, was negative for the fifth straight month to stand at minus 0.7 in October.
U.S. factories responded to robust consumer demand by ramping up activity, with the Institute for Supply Management’s measure of national manufacturing dropping to 58.1 in November from 59.1. However, the figure was still above the 50 mark that points to expansion in the sector.
The data suggested economic growth was running along at a pretty decent clip in the fourth quarter, after chalking up an impressive 4.3 percent rate of expansion in the third quarter.
“The underlying growth numbers look pretty solid,” said Alan Ruskin, research director at 4Cast Ltd.
The mild 0.1 percent growth in the core PCE price measure in October shaved 0.2 percentage point off the year-on-year figure, leaving it at 1.8 percent and suggesting -- to the relief of bond investors -- that the Federal Reserve need be in no rush to push interest rates considerably higher.
“If you look at the last three months, these PCE figures signal that inflation is maybe losing some momentum and calls for just another few more Fed rate hikes in the near term,” said Tim Mazanec, director and senior currency strategist at Investors Bank & Trust in Boston.
The Fed has raised rates 12 times since June 2004, taking short-term interest rates to 4 percent from 1 percent, in a bid to head off price pressures. The rate hikes have helped push up mortgage rates, which in turn have sparked a cooling in America’s 5-year-old housing boom.
U.S. stock prices bounced as Wednesday’s data signaled inflation may be under control. Treasury bond prices lost ground after the firm factory activity data, though they had been bolstered by the tame inflation figures earlier.
Construction spending up
A separate government report showed U.S. construction spending grew by a greater-than-expected 0.7 percent in October as private residential building and public construction reached record high levels.
Construction spending rose to a seasonally adjusted annual rate of $1.132 trillion from a revised $1.124 trillion in September.
Private residential spending rose 0.6 percent to an annual $630 billion rate, a record. Public construction spending climbed 1.9 percent to $254 billion, also a new high. Private nonresidential construction, seen as a token of business confidence fell 0.3 percent, the second consecutive drop and the biggest decline since a 1.3 percent slide in June.
Strong construction spending comes even as the persistently hot U.S. housing market shows signs of slowing down as mortgage interest rates rise.
Jobless claims down
A separate report by the Labor Department showed the number of U.S. workers making new jobless claims fell last week to below the levels they were at before huge hurricanes hit the U.S. Gulf Coast earlier this year. Initial claims for state unemployment benefits dropped 17,000 to 320,000, largely in line with Wall Street forecasts.
Before the hurricanes -- Katrina hit in August and Rita in September -- jobless claims figures had shown the U.S. labor market stabilizing at healthy levels.
A more comprehensive look at employment will come Friday, when the government releases its November payrolls report. Economists polled by Reuters expect the report to show the U.S. economy created about 210,000 jobs in the month, with the unemployment rate steady at 5 percent.
“Behind the enormous distortions caused by the hurricanes, the underlying state of the labor market has continued to improve,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a note to clients.
Shepherdson said the jobless claims average over the past four weeks was 305,000 excluding hurricane-related filings, compared with a 317,000 average before the storms hit.