U.S. consumer spending growth slowed in October and business capital investment plans were weak, raising questions about expectations for solid economic performance in the fourth quarter.
Other data on Wednesday offered a more optimistic outlook, with household income registering the largest rise in seven months and first-time claims for jobless benefits remaining in a range that hinted at improving labor market conditions.
Despite the mixed data, economists said it still appeared the economy was accelerating after growing at a 2 percent annual rate in the third quarter.
We are still comfortable with our 3 percent (fourth quarter) growth forecast, but our confidence is not as strong as it otherwise would have been, said Millan Mulraine, a senior macro strategist at TD Securities in New York.
The latest signals on the health of the U.S. recovery came shortly after data showed China's once-booming factory sector shrank at its fastest pace in 32 months in November and the euro zone's private sector contracted for a third month.
U.S. stocks ended down for a sixth straight day on the Chinese data and after a weak government bond auction in Germany sparked fears that the European debt crisis was threatening even Germany, the euro zone's strongest economy.
With investors seeking a safe-haven, prices for U.S. Treasury debt rose, pushing the benchmark yield to a seven-week low. The dollar rallied against a basket of currencies.
The U.S. Commerce Department said consumer spending edged up 0.1 percent, a sharp slowdown from a 0.7 percent increase in September as households took advantage of the largest increase in income since March to rebuild their savings.
Inflation-adjusted spending also nudged up 0.1 percent last month, pointing to a loss of momentum after a relatively strong third quarter, when spending grew at an annual rate of 2.3 percent.
The department said in another report that non-defense capital goods orders excluding aircraft -- a closely watched proxy for business spending -- fell 1.8 percent last month. That was the largest decline since January.
Though this category normally declines in the first month of the quarter, a downward revision in the September figure to show only a 0.9 percent rise raised concerns that businesses were cutting back spending.
EUROPE ERODING CONFIDENCE
While noting that capital spending can be volatile month to month, economists said the debt crisis in Europe and a deadlock on deficit-cutting plans in the United States could be casting a cloud of uncertainty over the U.S. economy and discouraging businesses from making more investments.
We may ... be seeing some caution seeping into business risk-taking on the heels of developments in Europe and Washington, said Michael Feroli, an economist at JPMorgan in New York.
Feroli added that a business tax break due to expire at year-end may have pulled forward some spending and that impact could be fading.
Spending on capital equipment has been one of the major pillars of the recovery. Feroli estimates it accounted for more than a third of overall economic growth since the end of the 2007-09 recession.
Shipments on non-defense capital goods orders excluding aircraft, which go into the calculation of gross domestic product, fell 1.1 percent last month after declining 1.0 percent in September.
But it was not all doom and gloom.
Although the Labor Department reported initial claims for state unemployment benefits rose 2,000 to 393,000 last week, they remained below 400,000 for a third straight week, a level that economists view as a sign of some healing in the jobs market.
In addition, a four-week moving average of claims that is considered a better measure of labor market trends fell to its lowest level since April.
U.S. CONSUMER SPIRITS RISE
The improving labor market tone has helped consumer confidence to perk up slightly.
The Thomson Reuters/University of Michigan's gauge of consumer sentiment rose to 64.1 this month from 60.9 in October. It was little changed from a preliminary reading of 64.2 early in the month.
That, combined with October's 0.4 percent increase in income, gave some economists reason to be optimistic that growth would still top a 3 percent annual pace in the current quarter.
When you want to look at future spending, you look at income, TD Securities' Mulraine said. From the income side, things are looking up for the households. Of course, they seem to be saving for the rainy day, which is not a bad thing.
Taking inflation into account, after-tax income rose 0.3 percent, the largest increase since October 2010, after a decline of 0.1 percent in September.
After months of dipping into their savings to fund spending, houses took advantage of the rise in income to boost saving.
The saving rate increased to 3.5 percent last month from 3.3 percent in September. Savings rose to annual rate of $400.2 billion from $376.9 billion in September.
(Additional reporting Jason Lange; Editing by Andrea Ricci and Leslie Adler)