Americans spend, but inflation weighs on the economy | Economic news


By MARTIN CRUTSINGER, AP Economic Editor

WASHINGTON (AP) – Americans are the main driver of the US economy – spending – but accelerating inflation is casting a veil.

A series of economic data released Wednesday showed the economy was strong, with Americans’ incomes rising and jobless claims falling to levels not seen since The Beatles were still together.

However, soaring prices for everything from gasoline to rent will likely be the primary economic indicator Americans discuss at Thanksgiving dinner.

The Commerce Department reported that U.S. consumer spending rebounded 1.3% in October. This is despite inflation, which over the past year has accelerated faster than it has ever been in more than three decades.

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The jump in consumer spending last month was double the 0.6% gain in September.

At the same time, consumer prices rose 5% from the same period last year, the fastest 12-month increase since the same period ending in November 1990.

“Although consumer confidence fell in the fall due to high inflation, households continue to spend,” said Gus Faucher, chief economist at PNC Financial.

Personal income, which is fueling future spending increases, rose 0.5% in October after falling 1% in September, reflecting lower government support payments.

Americans’ pay has risen as businesses desperately seek workers, and government stimulus checks earlier this year have further inflated their bank accounts. It bodes well for a good holiday season and major U.S. retailers are saying they are ready after some companies, like Walmart and Target, go to great lengths to ensure their shelves are full despite widespread shortages.

Analysts said the solid spending increase in October, the first month of the new quarter, was encouraging evidence that overall economic growth, which slowed to a modest 2.1% annual rate in the July quarter to September, will post a significant rebound during the current quarter. This is expected as long as the recent increase in COVID cases and concerns about inflation do not dampen holiday shopping.

“After suffering one of the most severe economic shocks of the last century in 2020, the US economy posted one of the fastest recoveries in modern history in 2021,” wrote Gregory Daco, chief economist American for Oxford Economics, in a note to clients. Daco predicts that GDP in the current period from October to December would rebound at a growth rate of 5.6%.

The number of Americans claiming unemployment benefits, meanwhile, fell last week from 71,000 to 199,000, the lowest since mid-November 1969. But seasonal adjustments around the Thanksgiving holiday have helped a lot. significantly lower than expected. Unadjusted, claims actually increased from over 18,000 to almost 259,000.

In an advisory note Wednesday, the University of Michigan announced that its consumer confidence index fell 4.3 percentage points to 67.4 this month, its lowest level since November 2011, weighed down by fears of inflation.

And there are areas in the United States that are seeing an increase in COVID-19 cases that could worsen as families roam the country for the Thanksgiving holiday.

President Joe Biden acted on Tuesday to counter soaring gasoline prices by ordering a release of the country’s strategic oil reserve, but economists expect the move to have minimal effect on soaring gas prices.

The Fed seeks to conduct its interest rate policies to achieve annual gains in its prime price index of around 2%. However, over the past two decades, inflation has still not reached the Fed’s 2% inflation target.

Fed officials at their November meeting announced the start of a cut to its $ 120 billion per month bond purchases the central bank had made to put downward pressure on rates. long-term interest in order to stimulate the economy.

The minutes of that meeting showed that Fed officials were increasingly concerned that unwanted price pressures could last longer. Officials have indicated that the Fed should be prepared to cut its bond purchases faster – or even start raising the Fed’s benchmark interest rate sooner – to ensure inflation doesn’t. does not degenerate.

The reduction in bond purchases marked the Fed’s first move to withdraw its massive support for the economy. Economists expect this to be followed in the second half of 2022 by an increase in the Fed’s benchmark interest rate, which impacts millions of consumer and business loans. This rate is at a record high of 0% to 0.25% since the start of the pandemic in the spring of 2020.

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