US recovery accelerates on spending, labor market growth
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4 min read . Updated: 27 Nov 2021, 08:00 AM IST Personal spending rose 1.3% in October, while income increased 0.5%
Premium 4 min read . Updated: 27 Nov 2021, 08:00 AM IST The U.S. economy showed broad-based signs of acceleration heading into the end of the year, with consumers ramping up spending, businesses stepping up investment and jobless claims falling to historic lows.
Household spending rose 1.3% in October from a month earlier, while personal income increased 0.5% last month, the Commerce Department said Wednesday. Consumers are benefiting from a strong labor market. And they are spending at a faster pace than inflation, which recently hit a three-decade high.
Jobless claims, a proxy for layoffs, fell to 199,000 last week, the lowest weekly level in 52 years, the Labor Department separately said. The sharp decline in unemployment claims suggests rising wages and bountiful job openings could continue to buttress consumer spending—the economy’s main engine—despite fading government stimulus and dwindling savings.
“The consumer is still a big driver," said Derrick Fung, chief executive at Cardify.ai, a market-research firm. “We’re forecasting a very strong holiday season."
Consumers increased spending on goods, including big-ticket and smaller purchases, by 2.2% in October. Spending on services remains lower than in February 2020, the month before the pandemic hit the U.S. economy, but is showing glimmers of improvement. Outlays on services grew 0.9% last month, an acceleration from the preceding two months.
Some sectors that are particularly vulnerable to the pandemic are starting to see a pickup and are in a much better position than a year earlier. For instance, international travel to major U.S. airports rose in November after the U.S. lifted its travel ban on Europeans, Jefferies economists said in a note. Spending among tourists could help boost U.S. retail sales, the economists said.
Companies such as manufacturers face higher material and shipping costs, as well as labor and parts shortages that could delay some shipments this holiday season. Still, there are early signs that global supply-chain problems are easing. For instance, in Asia, Covid-related factory closures, energy shortages and port-capacity limits have fallen in recent weeks.
Demand for goods remains hot even though computer-chip shortages have dented factory output for months. New orders for motor vehicles and parts jumped 4.8% from September to October, one of the largest increases among sectors, the Commerce Department said in a report on durable goods released Wednesday. A separate Federal Reserve report from earlier in November said production of vehicles rose 18% last month.
New orders for nondefense capital goods excluding aircraft, a closely watched proxy for business investment, were up 0.6% in October compared with the previous month, Commerce Department data show. Business investment has grown solidly this year.
In an economy where there is a shortage of workers, companies are investing in machinery and technology that make their existing employees more productive, said Gus Faucher, chief economist at PNC Financial Services Group Inc. “I suspect that will remain strong through 2022," he said.
Strong consumer demand for everything from apparel to electronics to hardware is boosting sales at several of the biggest U.S. retailers, despite rising prices. The retail chains Target Corp. and TJX Cos. said they were able to sidestep supply-chain snarls to post strong sales in the most recent quarter and stock up with goods for Black Friday and the holiday season.
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Employers across the economy report they are struggling to find workers to keep pace with demand. Retailers, hospitality, leisure and logistics firms are particularly strapped and have been raising pay to avoid staff shortages during the critical holiday shopping and travel season.
Wage increases will be a key source of spending power for consumers as they run through savings accumulated from multiple rounds of government stimulus. Americans were saving at an annualized rate of $1.322 trillion in October, compared with $5.764 trillion in March, when a fresh round of stimulus started reaching bank accounts.
The personal-saving rate, which is the difference between disposable income and spending, was 7.3% in October, in line with pre-pandemic levels.
The booming job market has been a boon for Caleb Waack’s career. The 28-year-old starts a new job in data engineering for an online mattress firm next Monday, his third since the pandemic began. Mr. Waack said he seized on extra time from working remotely to study up on programming, helping him transition from automotive engineering to consumer goods and, ultimately, to his chosen field of data science.
He said he received an offer for his new job within a week of applying, compared with a five-week turnaround time for the role he took in mid-2020.
“The labor market is scorching hot," said Mr. Waack, who lives in De Pere, Wis. “The salary increase is—it’s significant, definitely higher than inflation. It’s an employees’ market, right?"
Covid-19 is still disrupting the economy and poses a risk to the outlook. Virus cases have risen this month, and some public-health experts warn that cases could continue to climb as people gather indoors during the winter.
Kaitlyn Fischer, 21 years old, of Battle Creek, Mich., lost one of her gigs as a nanny recently because of a client’s concern about Covid-19. Her income fell to about $350 to $400 a week from $700. She has been searching for another job but said there are few vaccinated families in the area, or ones who are seeking child care during the hours she can provide it and at the pay rate she desires.
Because of her financial situation, she said she is spending less on Christmas gifts than in previous years. She bought her mom a watch on clearance for about $20, the most expensive Christmas gift she has purchased. Ms. Fischer said that she normally loves to give gifts but that holiday shopping has been stressful this year.
“I also feel super guilty only being able to spend $20 on a gift for someone," she said. “It just feels a little bit less special."
This story has been published from a wire agency feed without modifications to the text
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