Consumer Spending and Optimism Edges Higher

By November 23, 2011Economy

The Bureau of Economic Analysis found that personal income rose 0.4 percent in October, its fastest pace since March, with personal consumption up 0.1 percent. Indeed, consumer spending grew 0.8 percent for durable goods items, building on the 2.9 percent increase in September. Spending on nondurable goods, though, dropped 0.2 percent. Consumption is up 4.7 percent since October 2010.

Wages and salaries for manufacturing workers totaled $709 billion in October, up $6.3 billion from September.

Personal disposable income rose 0.3 percent in October, both in nominal and real terms. The inflation rate, as determined by the personal consumption expenditure deflator, is currently 2.7 percent for all items or 1.7 percent when food and energy costs are excluded (with the latter being the “core” inflation rate).

The savings rate is now 3.5 percent, which is slightly higher than the 3.3 percent rate observed last month but still lower than the 5 percent found in June. The downward trend in recent months has been a function of consumer spending growth outstripping the increases in personal income. This month’s stronger growth in personal income has helped to lift the savings rate by 0.2 percentage points.

Mirroring this uptick in spending is renewed consumer confidence. The University of Michigan and Thomson Reuters observed higher consumer sentiment in November, with its index rising from 60.9 in October to 64.1 in November. According to its press release, consumers anticipate “a slowly improving economy, and more importantly, slow gains in employment.”  Measures for present conditions as well as future expectations both increased slightly, but it was the growth in anticipated economic conditions that led the gain. It increased from 51.8 to 55.4.

Still, it is important to keep in mind that these numbers still reflect an anxious American consumer. The index is still relatively low even with this month’s gain. It remains 10 points lower than six months ago, for instance, and well below where it stood pre-recession.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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