© Reuters. U.S. Consumer Spending Shows Signs of Slowdown Amid Economic Cooling
Quiver Quantitative – The U.S. economy is showing signs of a gradual slowdown, with consumer spending increasing by just 0.2% in October, according to the Commerce Department’s Bureau of Economic Analysis. This moderation in consumer spending, a key driver of U.S. economic activity, reflects the impact of higher borrowing costs and diminishing excess savings, particularly among low-income households. Despite the slowdown, the economy continues to defy recession predictions, growing robustly in the third quarter. However, inflation remains a concern, with the personal consumption expenditures (PCE) price index rising 0.2% in October, and the core PCE price index, the Fed’s preferred inflation measure, advancing 3.5% year-on-year.
The labor market is also showing signs of cooling. The number of Americans filing for unemployment benefits rose to 218,000 last week, with continuing claims surging to a two-year high. The increase in continuing claims reflects challenges in adjusting the data for seasonal fluctuations and suggests that job searches for recently laid-off individuals may be taking longer. The Fed’s Beige Book report echoes this trend, noting that demand for labor has “continued to ease” with most districts reporting only modest increases in overall employment.
Amid these developments, expectations are growing that the Federal Reserve’s interest rate hiking campaign might be nearing its end. Market participants and policymakers are now pondering the possibility of a rate cut in mid-2024. The Fed has raised its benchmark overnight interest rate by 525 basis points since March 2022, but recent data indicating cooling demand and inflation have fueled optimism for a potential pivot in monetary policy. However, Fed officials have pushed back against market expectations for a quick shift to rate cuts.
Investors and economists are closely monitoring these trends, as they have implications for the future direction of the U.S. economy. The balance between managing inflation and sustaining growth remains a delicate one for the Fed, particularly as the global economic landscape continues to evolve in the post-pandemic era. The coming months will be crucial in determining whether the U.S. economy can achieve a soft landing or if further adjustments in monetary policy will be necessary.