By Josh Mitchell
Americans' spending rose briskly in October while their income
fell sharply, adding to other mixed signals about the strength of
the economic recovery.
Consumer spending rose 0.5%, the sixth straight monthly
increase, the Commerce Department said Wednesday. However, the gain
was the smallest over that stretch.
Household income -- which includes wages, investment returns and
government payments -- fell 0.7% last month, in part because of the
fading effects of government aid programs. The drop could weigh on
consumer spending in the months ahead.
Consumer spending has been strong enough to help fuel economic
growth since the sharp recession this past spring, when the
coronavirus pandemic forced millions of businesses, schools and
government agencies across the U.S. to shut down or limit their
activities. Consumer spending represents more than two-thirds of
economic activity in the U.S.
Other recent data have similarly shown both economic strength
and weakness.
The Labor Department reported Wednesday that new claims for
unemployment insurance, a proxy for layoffs, rose last week to
778,000, the second consecutive weekly increase. Claims haven't
risen for two consecutive weeks since July.
Jobless claims are down sharply from a peak of nearly seven
million in late March. But they remain higher than in any previous
recession -- the pre-pandemic peak was 695,000 in 1982 -- for
records tracing back to 1967.
Unemployment filings can be more volatile around the holidays,
due to workweek changes that can cause seasonal-adjustment
anomalies. The four-week moving average, which smooths out weekly
variation, increased by 5,000 to 748,500, the Labor Department
said.
Increases in jobless claims were widespread across states. Some
of the states with sharp increases in coronavirus cases, including
Minnesota, Ohio and Illinois, saw a large rise in claims last
week.
Job growth was strong in October, though it has slowed every
month since June. Unemployment fell a full percentage point to
6.9%, but remains high at nearly double the February 3.5% rate.
Orders of durable, or long-lasting goods, rose 1.3% in October.
The Commerce Department said that its second reading of gross
domestic product growth in the third quarter was unchanged from the
initial estimate, at a 33.1% annual rate, or 7.4% over the prior
quarter, while U.S. company earnings picked up strongly.
A new wave of virus infections over the past month has led some
cities and states to impose new restrictions, such as evening
curfews, that could reduce households' ability to spend. Americans'
confidence in the economic outlook dimmed this month, the
Conference Board, a private research group, said this week. The
Jan. 1 expiration of expanded unemployment benefits will likely
lead to a drop in income for many jobless workers.
Still, Americans appear to be gradually increasing their
spending. While they aren't spending on airfares, hotel rooms or
concerts, they have increased spending on cars, appliances and
building materials for home projects. U.S. households overall have
paid down debt and boosted their savings, which could help enable
them to keep shopping in the near term.
"The economy is resilient," said Rubeela Farooqi, chief U.S.
economist at High Frequency Economics, before Wednesday's data.
"What we're looking at is the split nature of the recession. People
who recovered their jobs, they're able to save and spend on goods.
On the other hand, you have a substantial number of people who are
low-income people who don't have jobs to go back to."
The economy's path ahead depends partly on the fate of workers
like Ben Milano, a 59-year-old married father of twin girls in Long
Island, N.Y.
Mr. Milano said he lost his job at a travel company -- he had
managed and organized corporate travel events -- in March, as
companies canceled events world-wide. Then his wife, an ear doctor,
was furloughed. The couple cut spending broadly.
His wife was called back to work this summer and Mr. Milano
started receiving unemployment benefits. They resumed certain types
of spending. Mr. Milano recently had surgery on his back from an
injury incurred this summer, and the couple recently repaired a
broken pipe in their bathroom.
But they are looking to cut back again. In January, they will
have to resume payments on their mortgage as a reprieve granted by
their bank expires. In March, his jobless benefits expire.
"Do I go into my 401(k) and start pulling out of that?" he said.
"I'm not so worried for January. I'm worried about March, if this
continues the way it is."
Sarah Chaney Cambon and Harriet Torry contributed to this
article.
Write to Josh Mitchell at joshua.mitchell@wsj.com
(END) Dow Jones Newswires
November 25, 2020 11:08 ET (16:08 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.