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Consumer spending rebounds despite rising October inflation

Wednesday, November 24, 2021 | Martin Crutsinger, AP Economics Writer


People shop for frozen turkeys for Thanksgiving dinner at a grocery store in Mount Prospect, Ill., Wednesday, Nov. 17, 2021. First, the good news: There is no shortage of whole turkeys in the U.S. this Thanksgiving. But those turkeys — along with other holiday staples like cranberry sauce and pie filling — could cost more. (AP Photo/Nam Y. Huh)

WASHINGTON (AP) — U.S. consumer spending rebounded by a solid 1.3% in October despite inflation that over the past year has accelerated faster than it has at any point in more than three decades.

The jump in consumer spending last month was double the 0.6% gain in September, the Commerce Department reported Wednesday.

At the same time, consumer prices rose 5% compared with the same period last year, the fastest 12-month gain since the same stretch ending in November 1990. The surge in prices this year did contribute to the 1.6% rise in spending in November, yet adjusting for inflation, spending was still up a solid 0.7% after a 0.3% inflation-adjusted gain in September.

Personal incomes, which provide the fuel for future spending increases, rose 0.5% in October after having fallen 1% in September, a reflection of a drop in government support payments.

Pay for Americans has been on the rise with companies desperate for workers, and government stimulus checks earlier this year further padded their bank accounts. That bodes well for a strong holiday season and major U.S. retailers say they’re ready after some companies, like Walmart and Target, went to extreme lengths to make sure that their shelves are full despite widespread shortages.

Analysts said the solid increase in spending in October, the first month in the new quarter, was encouraging evidence that overall economic growth, which slowed to a modest annual rate of 2.1% in the third quarter, will post a sizable rebound in the current quarter, as long as the recent rise in COVID cases and concerns about inflation don't dampen holiday shopping.

In a cautionary note Wednesday the University of Michigan reported that its consumer sentiment index fell 4.3 percentage points to a reading of 67.4 this month, its lowest level since November 2011, weighed down by inflation concerns.

And there are regions in the U.S. experiencing a surge in COVID-19 cases that could get worse as families travel the country for the Thanksgiving holiday.

The 5% rise in consumer prices shown in Wednesday's report continued a string of high readings over the past several months as demand outstrips supply, reflecting in part shortages due to snarled supply chains.

President Joe Biden acted Tuesday to counter spiking gasoline prices by ordering a release from the nation's strategic petroleum reserve, but economists expect that move to have only a minimal effect on the surge in gas prices.

The data released Wednesday, including the peek into what Americans are paying for everyday goods, is preferred by the Federal Reserve because it tracks changes in what people are buying, unlike the consumer price index, which measures a fixed market-basket of goods.

The Fed seeks to conduct its interest-rate policies to achieve annual gains in its preferred price index of around 2%. However, over the past two decades, inflation has perennially failed to reach the Fed's 2% inflation target.

Fed officials at their November meeting announced the start of a reduction in its $120 billion per month in bond purchases which the central bank had been making to put downward pressure on long-term interest rates.

That marked the Fed's first maneuver to pull back on the massive support it has been providing to the economy. Economists expect that will be followed in the second half of 2022 by an increase to the Fed's benchmark interest rate, which influences millions of consumer and business loans. That rate has been at a record low of 0% to 0.25% since the pandemic hit in the spring of 2020.

And if inflation continues to overshoot the Fed's target, which Fed Chair Jerome Powell for months has described as transitory, economists the odds increasing for an accelerated reduction in the Fed's monthly bond purchases, as well as earlier action on its first interest rate hikes.

The Wednesday report on spending and incomes showed that consumers boosted their purchases of durable goods such as cars by 3.3% in October while spending on nondurable goods such as clothing rose by 1.6%. Spending on services increased 0.9% in October.

With spending up more than incomes, the personal saving rate fell to 7.3% in October, down from 8.2% in September, but still a high level.

Economists expect that the high level of savings will continue to support stronger spending by Americans through the holiday shopping season and into next year.

“Although consumer confidence has declined in the fall because of high inflation, households continue to spend,,” said Gus Faucher chief economist at PNC Financial. “Household income surged with stimulus payments and increased unemployment insurance benefits.”


7 Trucking Stocks That Are About to Go On a Roll

Americans are facing a historic supply chain crisis. The solutions are simple on the one hand and maddeningly complex on the other. And no industry embodies that complexity more than the trucking industry. Just getting the barges unloaded will not be enough. Those goods have to be transported to a final destination.

For that, we’re going to need trucks. And those trucks will need drivers. According to the American Trucking Association (ATA), approximately 70% of consumer goods in the United States are transported by trucks. However, for a variety of reasons, the industry faces a shortage of qualified drivers.

How extreme is that shortage? The ATA estimates that the shortage of qualified truck drivers sits at over 50,000 and continues to grow. In fact, it suggests that over 900,000 drivers are needed and there simply are not enough qualified drivers to meet that demand.

We’re not going to see one million new drivers on the road by the end of the year. And even if we did, trucking companies will be a beneficiary as the industry rises to meet this moment. This also means that investors should be eyeing trucking stocks. And that’s why we’ve prepared this special presentation which identifies seven trucking stocks that are excellent opportunities at this time.

View the "7 Trucking Stocks That Are About to Go On a Roll".


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