Data released by the Commerce Department indicated that consumer spending tapered off in October, rising only 0.1 percent, much less than the forecasted amount. By contrast, spending increased 0.7 percent in September. Spending accounts for roughly 70% of all economic activity within the United States.
The sluggish spending exhibited by consumers is despite the largest gain in income since March – 0.4 percent. This could be because despite incomes being on the rise, they are not keeping up with inflation. Although inflation is showing signs of subsiding, which will make a not insignificant difference in the pockets of many consumers, affording them more disposable income to play with.
With the country-wide unemployment rates holding fast at 9%, more and more households have been restraining their spending and making the effort to save. Average savings rates rose in October 3.5%, up from the 3.3% rate in September. In terms of actual money, October saw an annual rate of $400.2 billion saved. In September, the annual savings rate was $376.9 billion.
“It will probably be a lukewarm holiday season. We are not hearing anecdotes of a major pullback, nor does it look like consumers are accelerating their spending,” stated Michael Feroli who is the chief U.S. economist at JPMorgan Chase & Co., according to Bloomberg.
As a result, so of the country largest retail chains are offering extensive discounts just as the holiday shopping gets underway. Department stores such as Kohl`s and Macy`s have indicated their plans to avail shoppers of even more discounts and sales in the effort to entice more spending. Black Friday, which kick off the unofficial start of the holiday shopping season, is Friday, November 25.
Although high-end retailers such as Saks Inc. has claimed that the affluent customers that patronize their stores seem to be doing all right, other retailers are markedly less hopeful.
“Until the U.S. begins to see robust improvement in jobs and signs of recovery in the housing market, we believe consumer spending will likely continue to be soft and uneven,” claimed Doug Scovanner the chief financial officer at Target Corp., according to Bloomberg.
The orders placed for durable goods also sank in October, possibly indicating that manufacturing may slow down in tandem with spending.