In this Thursday, Nov. 28, 2013, photo, a man sorts through cash after checking out at a Kmart, in New York. (AP Photo/Julio Cortez)
WASHINGTON (AP) -- U.S. consumers increased their spending in October even though their wages and salaries barely increased, raising questions about how strong the economy will grow at the end of the year.
Consumer spending increased 0.3% in October compared with September when spending rose 0.2%, the Commerce Department reported Friday. Wages and salaries rose a slight 0.1% after a much stronger 1% rise in September.
Overall income actually fell 0.1% following a 0.5% rise in September. But September's gain was inflated by a legal settlement that boosted farm income that month, leading to a big decline in farm income in October.
The personal saving rate dipped to 4.8% of after-tax income in October, down from 5.2% in September, reflecting the difference between spending and income.
The rise in spending reflected gains in purchases of long-lasting manufactured goods such as autos and gains in spending on non-durable goods such as clothing and services such as rent and utilities. It meant a solid increase for the first month of the current quarter.
Consumer spending is closely watched because it accounts for 70% of economic activity.
The economy grew at a 3.6% annual rate from July through September, the fastest since early 2012, but nearly half the growth came from a buildup in business stockpiles, a trend that could reverse in the current quarter and hold back growth. When excluding inventories, the economy grew at a 1.9% rate in the third quarter, down from 2.1% in the spring. That's in line with the same subpar rate that the economy has seen since the Great Recession ended four years ago.
Many economists believe overall economic growth will dip below 2% in the current October-December quarter, in part because a slowdown in inventory building will act as a drag on activity.
But there have been some signs of strength including a separate report Friday showing that the unemployment rate dropped to a five-year low of 7% in November as the economy created 203,000 jobs.
In the third quarter, consumers increased their spending at a tepid 1.4% annual rate. That was the slowest since the final quarter of 2009, a few months after the recession officially ended. But the spending activity in the third quarter was held back by flat spending on services. That may have reflected an unusually mild summer, which cut demand for air conditioning. One hopeful sign: Consumers spent on goods at the fastest rate since early 2012.
An inflation gauge closely watched by the Federal Reserve showed prices were flat in October and have risen just 0.7% over the past 12 months, well below the Fed's 2% target for inflation.
