By Josh Mitchell
Americans' spending rose briskly in October while their income fell sharply, adding to other mixed signals about the strength of the economic recovery.
Consumer spending rose 0.5%, the sixth straight monthly increase, the Commerce Department said Wednesday. However, the gain was the smallest over that stretch.
Household income -- which includes wages, investment returns and government payments -- fell 0.7% last month, in part because of the fading effects of government aid programs. The drop could weigh on consumer spending in the months ahead.
Consumer spending has been strong enough to help fuel economic growth since the sharp recession this past spring, when the coronavirus pandemic forced millions of businesses, schools and government agencies across the U.S. to shut down or limit their activities. Consumer spending represents more than two-thirds of economic activity in the U.S.
Other recent data have similarly shown both economic strength and weakness.
The Labor Department reported Wednesday that new claims for unemployment insurance, a proxy for layoffs, rose last week to 778,000, the second consecutive weekly increase. Claims haven't risen for two consecutive weeks since July.
Jobless claims are down sharply from a peak of nearly seven million in late March. But they remain higher than in any previous recession -- the pre-pandemic peak was 695,000 in 1982 -- for records tracing back to 1967.
Unemployment filings can be more volatile around the holidays, due to workweek changes that can cause seasonal-adjustment anomalies. The four-week moving average, which smooths out weekly variation, increased by 5,000 to 748,500, the Labor Department said.
Increases in jobless claims were widespread across states. Some of the states with sharp increases in coronavirus cases, including Minnesota, Ohio and Illinois, saw a large rise in claims last week.
Job growth was strong in October, though it has slowed every month since June. Unemployment fell a full percentage point to 6.9%, but remains high at nearly double the February 3.5% rate.
Orders of durable, or long-lasting goods, rose 1.3% in October. The Commerce Department said that its second reading of gross domestic product growth in the third quarter was unchanged from the initial estimate, at a 33.1% annual rate, or 7.4% over the prior quarter, while U.S. company earnings picked up strongly.
A new wave of virus infections over the past month has led some cities and states to impose new restrictions, such as evening curfews, that could reduce households' ability to spend. Americans' confidence in the economic outlook dimmed this month, the Conference Board, a private research group, said this week. The Jan. 1 expiration of expanded unemployment benefits will likely lead to a drop in income for many jobless workers.
Still, Americans appear to be gradually increasing their spending. While they aren't spending on airfares, hotel rooms or concerts, they have increased spending on cars, appliances and building materials for home projects. U.S. households overall have paid down debt and boosted their savings, which could help enable them to keep shopping in the near term.
"The economy is resilient," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, before Wednesday's data. "What we're looking at is the split nature of the recession. People who recovered their jobs, they're able to save and spend on goods. On the other hand, you have a substantial number of people who are low-income people who don't have jobs to go back to."
The economy's path ahead depends partly on the fate of workers like Ben Milano, a 59-year-old married father of twin girls in Long Island, N.Y.
Mr. Milano said he lost his job at a travel company -- he had managed and organized corporate travel events -- in March, as companies canceled events world-wide. Then his wife, an ear doctor, was furloughed. The couple cut spending broadly.
His wife was called back to work this summer and Mr. Milano started receiving unemployment benefits. They resumed certain types of spending. Mr. Milano recently had surgery on his back from an injury incurred this summer, and the couple recently repaired a broken pipe in their bathroom.
But they are looking to cut back again. In January, they will have to resume payments on their mortgage as a reprieve granted by their bank expires. In March, his jobless benefits expire.
"Do I go into my 401(k) and start pulling out of that?" he said. "I'm not so worried for January. I'm worried about March, if this continues the way it is."
Sarah Chaney Cambon and Harriet Torry contributed to this article.
Write to Josh Mitchell at firstname.lastname@example.org
(END) Dow Jones Newswires