By Josh Mitchell
The U.S. economy is recovering at a sturdy but slowing pace heading into the holidays as Covid-19 infections continue to rise.
Consumers stepped up their spending by a brisk 0.5% in October, down from a gain of 1.2% the month before, the Commerce Department said Wednesday. Factory orders for long-lasting goods rose a solid 1.3%, in part because businesses shelled out more for long-term projects, the agency said. Sales of newly built homes slipped last month but remained near the highest level in almost 14 years.
All pointed to an economy continuing to regain ground lost during the spring, even if the expansion has slowed since the third quarter's rapid rebound.
The good news was tempered by reports Wednesday of rising layoffs, falling income and declining consumer confidence.
New applications for jobless benefits, a proxy for layoffs, rose to 778,000 last week, the second straight weekly increase after declining since the summer, the Labor Department said. Household income fell 0.7% last month, as temporary federal aid programs for unemployed workers faded, the Commerce Department said. A measure of consumer confidence released Wednesday showed that Americans have become more worried about the months ahead, according to a University of Michigan survey.
Those shifts could cause many households to rein in spending this winter, which would impede the recovery. Consumer spending accounts for more than two-thirds of economic activity in the U.S.
"There's much more momentum than we had presumed," said Pooja Sriram, U.S. economist at Barclays. "The real question we've been asking ourselves is, is this momentum sustainable?"
She and other economists have doubts. A new wave of Covid-19 infections over the past month led some cities and states to impose new restrictions, such as evening curfews, that could reduce households' ability to spend. The Jan. 1 expiration of expanded unemployment benefits will likely lead to a drop in income for many jobless workers.
Gross domestic product, the broadest measure of goods and services, grew at a record annual rate of 33.1% in July through September, or 7.4% from the prior quarter, the Commerce Department said in its second reading. But that still left output 3.5% below its level at the end of last year. U.S. company earnings picked up strongly last quarter, the report showed.
Economists believe growth will slow in the fourth quarter. Forecasting firm IHS Markit projects output to expand at a 5.7% annual rate in October through December.
Consumer spending has been strong enough to help fuel economic growth since the spring, when the coronavirus pandemic forced millions of businesses, schools and government agencies across the U.S. to shut down or limit their activities.
General Electric Co. told employees this month it plans to cut more jobs in its jet-engine business because of the pandemic's impact on commercial air travel, even with the promise of a vaccine on the horizon. Other big companies announced job cuts this month as the pandemic persists.
Before last week, jobless claims hadn't risen for two consecutive weeks since July. They 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.
Despite last month's drop, household income was 5% above its March level. Many households have built up savings, in part because they haven't been able to spend on many services shut down by the pandemic. While Americans are spending less on airfares, restaurants and concerts, they have increased spending on cars, appliances and building materials for home projects.
The economy's path ahead depends partly on the fate of couples like Jennifer and Ben Milano, parents of twin girls in Long Island, N.Y. Mr. Milano lost his job at a travel company in March.
He recently underwent back surgery and is undergoing physical therapy. He and his wife also repaired a pipe in their bathroom. They could afford to do so because they received federal stimulus checks under the Cares Act and Mrs. Milano, an ear doctor who had been furloughed in the spring, was called back to work this summer.
But the stimulus money is running out. Since losing his job, Mr. Milano has been receiving unemployment benefits, which are set to expire in March. In January, they will have to resume payments on their mortgage as a reprieve granted by their bank expires.
They are looking to cut back again.
"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