Consumer spending in the U.S. rises as inflation remains stubborn

In October 2024, the United States experienced a solid increase in consumer spending, rising by 0.4 percent according to the Commerce Department's Bureau of Economic Analysis. This increase slightly outperformed economists' expectations, who had predicted a 0.3 percent gain. The rise in spending is significant as it accounts for over two-thirds of the country’s economic activity. It indicates that, despite the persistent inflation challenges that have prevented a decline in prices to the Federal Reserve's target, the economy is maintaining solid growth momentum early in the fourth quarter. The data revealed that the increase in consumer expenditure was primarily driven by strong demand in service sectors such as healthcare, housing, utilities, financial services, dining, and recreation. Meanwhile, spending on goods like apparel and furniture saw declines, which could suggest a shift in consumer preferences, focusing more on services rather than durable goods. Notably, the Federal Reserve has been contemplating interest rate cuts but faces a complex situation as inflation measures remain elevated despite the growth in spending. The personal consumption expenditures (PCE) price index rose by 2.3 percent over the last year, with core inflation, which excludes food and energy prices, increasing by 2.8 percent. The Fed had already cut rates earlier prompting concerns that future cuts may be constrained by ongoing inflationary pressures. Moreover, the labor market showed signs of resilience with initial unemployment claims dropping to their lowest levels since April. This aspect, coupled with strong household balance sheets due to high home prices and a booming stock market, is expected to influence the upcoming employment report and subsequent monetary policy decisions.