US consumer spending exits Q3 on strong note

WASHINGTON, Oct 28 (Reuters/AFP): US consumer spending surged in September as households boosted purchases of motor vehicles and traveled, keeping spending on a higher growth path heading into the fourth quarter.
The stronger-than-expected increase in spending reported by the Commerce Department on Friday was accompanied by elevated monthly inflation readings, against the backdrop of higher costs for services like housing. Spending is, however, seen cooling off in early 2024 as excess savings accumulated during the pandemic start running out, leaving economists convinced the Federal Reserve is done raising interest rates.
But risks of a rate hike remain.
"US consumers still had some gas left in the tank last month that risks carrying into the current quarter," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
"While we still expect spending and the economy to downshift sharply in the fourth quarter, the risk is that both will keep running hotter than the Fed needs to subdue still-stubborn services inflation."
Consumer spending, which accounts for more than two-thirds of US economic activity, accelerated 0.7 per cent last month after an unrevised 0.4 per cent rise in August, the Commerce Department's Bureau of Economic Analysis reported. Economists polled by Reuters had forecast spending gaining 0.5 per cent.
The increase in spending was spread across goods and services. Outlays on goods increased 0.7 per cent, led by prescription medication, new light trucks, food and beverages as well as recreational goods and vehicles.
The data was included in the advance gross domestic product report for the third quarter published on Thursday, which showed consumer spending accelerating sharply, contributing to the fastest pace of economic growth in nearly two years.
Adjusting for inflation, consumer spending rose a solid 0.4 per cent in September after ticking up 0.1 per cent in August, a strong hand-off from the April-June quarter that bodes well for consumption and overall economic growth in the fourth quarter.
Meanwhile, the US economy is contending with a wave of union activism unseen in decades as organised labor seizes a rare opportunity to play hardball in a tight employment market.
Sectors experiencing unrest include automobiles, health care, restaurants, defense, airlines, technology and the performing arts.
In some cases, employees have threatened to walk out, but didn't actually strike.
"Workers haven't had much leverage for decades, and certainly not in the aftermath of the 2008-2008 recession," said Susan Schurman, professor of labor relations at Rutgers University.
Schurman considers the current dynamic the most advantageous for unions since the 1930s, a rupture from a long period in which employers had the upper hand.
"Wages have been stagnant for decades," Schurman said. "The pandemic changed all that," with the low unemployment bolstering worker leverage.
Such a backdrop has given momentum to organizing campaigns at more companies, although establishing a union shop remains difficult.
In some cases such as Starbucks and Amazon, workers have voted in favor of representation, but struggled to seal a contract with the employer.
The activism can feed on itself as workers in different sectors observe each other fighting for more, sometime spurring concessions from employers who are trying to stay union-free, said Schurman.
This can mean higher wages, better working conditions, increased job security or other conditions.
Higher consumer prices have been another catalyst for workers, adding credibility to workers claims that they need higher pay just to break even.
Data released this week showed a 3.7 per cent increase over September 2022, down from the 9.1 per cent surge in June 2022.
The Federal Reserve has raised interest rates 11 times since March 2022 in an effort to return inflation to a two per cent target.
In August the United States lost 4.1 million days of work due to strikes, the highest level in 23 years, according to the Labor Department.
One of the most prominent strikes has been the United Auto Workers' unprecedented stoppage of Detroit's "Big Three," Ford, Stellantis and General Motors, the first time the union has walked out of all three companies at once.