The numbers: Americans are paying higher consumer prices due to surging inflation, but they are also buying plenty of goods and services to underpin a U.S. economy recovery.
Consumer spending climbed 1.3% last month, the government said Wednesday. Americans spent more on new cars and travel-related services in October.
Economists polled by The Wall Street Journal had forecast a 1% increase.
Higher prices accounted for about half the gain, however. Consumer spending rose a more modest but still strong 0.7% after factoring in inflation.
High inflation is likely to persist at least until the middle of next year. A measure of inflation included in the spending report rose again in October to push the increase over the past year to a 31-year high of 5%.
Incomes rose 0.5% last month, but inflation more than offset the increase.
Big picture: Consumer spending is the main engine of the U.S. economy and it’s purring more loudly as the year winds down. Even higher prices have not deterred Americans from buying more goods and services.
How long can they keep it up with inflation rising so rapidly? That remains to be seen, but economists predict the U.S. will finish the year on a high note.
They point out that households built up huge savings during the pandemic and wages are also rising rapidly because of the tightest labor market in decades. So Americans still have plenty of money to spend.
One potential obstacle: Surging coronavirus cases in the North and Midwest. The virus could curb spending in large swaths of the country toward the end of the year if caseloads don’t start to fall soon.
What they are saying? “Watch what consumer do, not what they say. Although consumer confidence has declined in the fall because of high inflation, households continue to spend,” said Gus Faucher of PNC Financial Services. “And the increase is in real spending—higher volumes—not just higher prices.”