US consumer spending expected to post moderate gain in October

Economic IndicatorsAssociated Press

The Commerce Department releases its October report on consumer spending. The report will be issued Wednesday at 8:30 a.m. EST.

SPREADING IT AROUND: The forecast is that spending increased 0.3 percent in October, according to a survey of economists by FactSet, and that income increased 0.4 percent.

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RETURN OF THE CONSUMER: U.S. consumers cut back on spending in September, underscoring nagging economic soft spots that are expected to ease in coming months.

Economists closely watch what Americans spend, as it accounts for 70 percent of economic activity.

The government reported Tuesday that the overall economy, as measured by the gross domestic product, grew at a healthy 3.9 percent rate in the July-September quarter. That was an improvement over the government's initial estimate of 3.5 percent GDP growth in the third quarter. Part of that gain came from consumers. The government estimated that spending grew at a 2.2 percent rate, an improvement over the 1.8 percent initially estimated.

Economists believe spending will remain solid in the current October-December quarter thanks in part to solid gains in employment and falling gas prices, which give people more to spend elsewhere.

Retail sales posted a modest gain in October with strength coming from a solid increase in auto sales.

The National Retail Federation, a trade group, is forecasting that holiday sales will rise 4.1 percent this year, compared with 2013. That would be the biggest gain in three years.

The job market has made steady progress this year. Employers have added an average of 239,000 jobs a month through October. That would make hiring in 2014 the strongest that the U.S. has seen in 15 years. The unemployment rate has fallen to 5.8 percent, a six-year low, from 7.2 percent just one year ago.

A stronger labor market will likely make Americans more bullish about spending and that will add to the nation's economic growth. On top of an improving job picture, the adverse impact of earlier government spending cuts and tax hikes are going to ease following five straight years of sub-par growth.

Analysts believe overall economic growth will slow briefly to around 2.5 percent this quarter, but rebound next year to growth of 3 percent, which would be the strongest annual performance since 2005.

The Federal Reserve last month recognized signs of the improving economy but its language suggests that it does not intend to raise a key short-term interest rate for a "considerable time." Many economists believe with inflation still low, the Fed is willing to wait until the middle of 2015 before it begins to boost interest rates.