By Eric Morath
WASHINGTON -- Americans' incomes and household spending advanced at a solid pace for the second straight month in October, suggesting consumers can support economic growth in the year's final months.
Personal consumption, which measures how much Americans spent on everything from hospital stays to heating oil, rose 0.3% in October from a month earlier, the Commerce Department said on Wednesday. September spending was revised up to a 0.7% gain, up from a prior estimate of up 0.5% and the second-biggest monthly gain in two years.
Incomes advanced 0.6% in October, the best monthly gain since April, after a 0.4% gain in September.
"Conditions for consumers remain solid," said Gus Faucher, economist at PNC Financial Services Group. "With more jobs and higher wages, households have more money in their pockets to purchase goods and services."
Consumer spending accounts for about two-thirds of total output in the U.S. and household outlays have been the main driver of economic growth throughout much of the expansion. Spending was revised up in the third quarter, according to Commerce Department data released Tuesday. That pushed overall growth for the quarter to a 3.2% annual pace, the best reading in two years.
Solid spending and income growth this fall could be a sign that consumers have the capacity to step up purchases during the holiday-shopping season. Spending on goods intended to be used quickly, such as gasoline and clothing, rose sharply in October. Spending on services fell.
Meanwhile, consumer prices edged up further in October.
The personal-consumption expenditures price index, the Federal Reserve's preferred inflation measure, rose 0.2% in October from the prior month. From a year earlier, the index was up 1.4%. While still below the Fed's 2% target, it is the firmest year-over-year reading in two years.
So-called core prices, which exclude the volatile categories of food and energy, advanced 0.1% from the prior month and were up 1.7% from a year earlier.
In the past year inflation has accelerated from nearly flat to a level more consistent with a steadily growing economy. The deflationary effects of falling energy prices and a strong dollar are fading, and steady consumer demand may be giving firms some leeway to pass along price increases.
That isn't necessarily a bad sign. Economists view weak inflation as a symptom of a sluggish economy without enough demand or income gains to allow firms to commandhigher prices.
A firmer pace of inflation in recent months could offer support to Fed officials advocating for a rate increase at their next meeting, scheduled for Dec. 13 and 14.
"Incoming data show an economy that is growing at a healthy pace, with solid payroll job gains and inflation gradually moving up to 2%," Fed Governor Jerome Powell said in a speech Tuesday. "The case for an increase in the federal-funds rate has clearly strengthened."
When adjusting for inflation, Wednesday's report showed consumer spending rose 0.1% in October from the prior month. Inflation-adjusted disposable personal income -- income after taxes -- was up 0.4%.
Americans saved more last month. The personal saving rate rose to 6% from 5.7% the prior month.
Write to Eric Morath at firstname.lastname@example.org
(END) Dow Jones Newswires
November 30, 2016 10:47 ET (15:47 GMT)
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