Personal spending in the U.S. rose 0.4 percent in October, marking a slight uptick in households' appetite for purchases even as a holiday season is kicking in.
The rise in consumer confidence was well supported by a similar rise in personal incomes in the month, which rose 0.5 percent, according to data from the Commerce Department, which was released on Wednesday.
The rise in personal spending was in line with analysts' expectations. The personal spending indicator, which measures the change in the total amount spent by consumers on goods and services in a given month, had posted a modest gain of 0.2 percent in September.
The trend of sequential rise in consumption is bullish on the GDP growth, but analysts have noted that the growth is still not strong enough and that the spending data justifies the Federal Reserve's launching of another round of asset purchases earlier in the month.
It now looks as though annualised consumption growth could accelerate from 2.8% in the third quarter to a little over 3% in the fourth. That could add about 0.3% to fourth-quarter GDP growth, wrote Capital Economics analyst Paul Dales in a note.
Official data showed on Tuesday GDP rose at an annual rate of 2.5 percent in the third quarter, up from 1.7 percent in the second quarter. Consumption accounts for almost 70 percent of the U.S. gross domestic product.
Real personal consumption expenditure was higher in the third quarter at 2.8 percent, according to the data. Analysts have said consumption growth in the third quarter is the largest rise in consumption since the first quarter of 2006 and suggests that household spending may be starting to gain some traction.
The Labor Department said in another report on Wednesday that weekly jobless claims fell sharply last week to the lowest level since July 2008.
Separately data also showed new orders for manufactured durable goods in October declined by 3.3 percent, the largest decline since January 2009, to a seasonally adjusted $196 billion.
Dales, however, noted that the 0.6 percent fall in non-defence capital goods shipments is an indication that the growth of business investment in equipment and software may well slow from the third quarter's annualised rate of 16.8 percent to around zero.
Overall, the improving outlook for consumption is encouraging, but we doubt it will be able to more than offset the clear slowdown in business investment.