US hit by sluggish consumer spending

US consumer spending barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter.

Anaemic consumer spending will probably do little to change expectations that the Federal Reserve will raise interest rates next month as other data on Wednesday showed a surge in business spending plans in October and a drop in new applications for unemployment benefits last week.

The Commerce Department said consumer spending edged up 0.1 per cent after a similar rise in September. When adjusted for inflation, consumer spending rose by the same margin.

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That suggests consumer spending, which accounts for more than two-thirds of US economic activity, has slowed from the third quarter’s brisk 3.0 per cent annual pace.

The tepid rise in spending could combine with an anticipated drag from an ongoing inventory reduction to hold the economy to around a 2 per cent growth rate in the fourth quarter. The government reported on Tuesday that the economy expanded at a 2.1 per cent rate in the third quarter.

Fed officials had held off raising rates at their last two meetings as they assessed the degree to which a stronger dollar and a slowing in economies overseas would weigh on the US.