Spending Is Up, Jobless Claims Are Down, But Confidence in US Economy Remains Iffy

In economic data released Wednesday, Americans are shown to be spending even as inflation rises, and applying for unemployment benefits at the lowest rate in decades, but experts are still concerned, according to The Associated Press.

The Commerce Department reported U.S. consumer spending rose by 1.3 percent in October, doubling the 0.6 percent gain from September. Prices, however, rose 5 percent compared with the same period last year, the fastest inflation rate over 12 months since the autumn of 1990.

"Although consumer confidence has declined in the fall because of high inflation, households continue to spend," said Gus Faucher, chief economist at PNC Financial.

Personal incomes, one of the premier indicators of future spending, rose 0.5 percent in October following a 1 percent dip in September. The decline was explained by an end to some government support payment programs. The rise is likely explained by companies in severe need of workers, giving employees leverage to ask for raises or higher starting wages.

According to analysts, the spending increase is encouraging evidence that the economy is heading for a sizable rebound in the current quarter.

"After experiencing one of the most severe economic shocks of the past century in 2020, the U.S. economy has displayed one of the most rapid recoveries in modern history in 2021," Gregory Daco, chief U.S. economist for Oxford Economics, wrote in a note to clients.

Growth slowed to a rate of 2.1 percent in the quarter from July-September. The quarter beginning with October is expected to help the economy rebound unless the recent rise in COVID cases or increasing inflation slows holiday shopping over the next month.

For more reporting from The Associated Press, see below.

Inflation, US Economy, Holiday Shopping
People shop for frozen turkeys for Thanksgiving dinner at a grocery store in Mount Prospect, Ill., Nov. 17, 2021. First, the good news: There is no shortage of whole turkeys in the U.S. this Thanksgiving. But those turkeys — along with other holiday staples like cranberry sauce and pie filling — could cost more. Nam Y. Huh/Associated Press

The spike in prices for everything from gas to rent, however, will likely be the chief economic indicator Americans discuss over Thanksgiving Day dinner.

Government stimulus checks earlier this year further padded their bank accounts. That bodes well for a strong holiday season and major U.S. retailers say they're ready after some companies, like Walmart and Target, went to extreme lengths to make sure that their shelves are full despite widespread shortages.

Daco predicts GDP in the current October-December period would rebound to a growth rate of 5.6 percent.

The number of Americans applying for unemployment benefits, meanwhile, dropped last week by 71,000 to 199,000, the lowest since mid-November 1969. But seasonal adjustments around the Thanksgiving holiday contributed significantly to the bigger-than-expected drop. Unadjusted, claims actually ticked up by more than 18,000 to nearly 259,000.

In a cautionary note Wednesday the University of Michigan reported that its consumer sentiment index fell 4.3 percentage points to a reading of 67.4 this month, its lowest level since November 2011, weighed down by inflation concerns.

And there are regions in the U.S. experiencing a surge in COVID-19 cases that could get worse as families travel the country for the Thanksgiving holiday.

President Joe Biden acted Tuesday to counter spiking gasoline prices by ordering a release from the nation's strategic petroleum reserve, but economists expect that move to have only a minimal effect on the surge in gas prices.

The Fed seeks to conduct its interest-rate policies to achieve annual gains in its preferred price index of around 2 percent. However, over the past two decades, inflation has perennially failed to reach the Fed's 2 percent inflation target.

Fed officials at their November meeting announced the start of a reduction in its $120 billion per month in bond purchases which the central bank had been making to put downward pressure on long-term interest rates in order to spur the economy.

Minutes from that meeting showed Fed officials increasingly concerned that the unwanted price pressures could last for a longer time. Officials indicated that the Fed should be prepared to move to reduce its bond purchases more quickly — or even start raising the Fed's benchmark interest rate sooner — to make sure inflation does not get out of hand.

The reduction in bond purchases marked the Fed's first maneuver to pull back on the massive support it has been providing to the economy. Economists expect that will be followed in the second half of 2022 by an increase to the Fed's benchmark interest rate, which influences millions of consumer and business loans. That rate has been at a record low of 0% to 0.25% since the pandemic hit in the spring of 2020.

Inflation, US Economy, Holiday Shopping
US President Joe Biden (C) announces Jerome Powell (L) as his nominee for Chair and Lael Brainard (R) as Vice Chair of the Board of Governors of the Federal Reserve Systems during an event at the White House in Washington, DC, on Monday. New economic data was released Wednesday that showed an increase in consumer spending in October despite rising inflation, a positive sign for the health of the economy. Jim Watson/AFP via Getty Images