Is the Long-Awaited Consumer Slowdown Beginning? Part III – Dept. of Commerce Data Shows a Slow October

Consumer spending slowed in October and is expected to be slow for the remainder of the quarter. Text in bold is my emphasis. From Bloomberg.

Consumer spending in the U.S. rose less than forecast in October and incomes increased at the slowest pace in six months, adding to concern the economy will bog down.

The 0.2 percent increase in purchases followed a 0.3 percent gain in September, the Commerce Department said today in Washington. Incomes also rose 0.2 percent, half the pace anticipated by economists surveyed by Bloomberg News.

The figures reinforce concern that, as Federal Reserve Chairman Ben S. Bernanke suggested in a speech yesterday, consumers will pare spending amid higher gasoline prices, the housing slump and reduced access to credit.

``Consumer spending is off to a pretty weak start for the fourth quarter,'' said Peter Kretzmer, a senior economist at Bank of America Corp. in New York. ``This helps confirm what is built into the market by now -- that the Fed is likely to move on interest rates next month.''

After adjusting for inflation, which are the figures used in calculating economic growth, purchases were little changed, the Commerce figures showed today.

Spending cooled as inflation has picked up. Prices rose 2.9 percent since October 2006, compared with a 2.4 percent increase in the year to September.

The report's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, rose 0.2 percent in October for a second month. It was up 1.9 percent from October 2006, matching the September increase which was revised higher.

Bernanke said in a speech yesterday that ``uncertainty surrounding the outlook'' is ``even greater than usual,'' requiring the Fed to be ``exceptionally alert and flexible.''

Federal funds futures show traders see a 100 percent chance of a reduction in the benchmark rate next month, with a 30 percent probability of a half-point move.

Inflation-adjusted spending on durable goods, such as autos, furniture and other long-lasting items, dropped 0.6 percent, the biggest decline since June. Purchases of non- durable goods fell 0.1 and spending on services, which includes utilities and accounts for almost 60 percent of all outlays, increased 0.1 percent.

The Fed said economic growth slowed in seven of 12 U.S. regions from October through mid-November, with retailers ``slightly pessimistic'' about year-end holiday sales, according to their regional survey issued this week.

Reports on retail spending ``were downbeat in general,'' according to the report known as the Beige Book. Most Fed banks reported that retailers expect sales growth ``to be modest at best in the upcoming holiday season,'' the central bank said.