Rising pay, solid job market signal steady economy
Associated Press
WASHINGTON
Americans’ pay is up, fewer people need unemployment aid, more are buying new homes, and business spending is rebounding.
A flurry of data released Wednesday signaled that the fundamentals of the U.S. economy remain solid, if unspectacular, three weeks before the Federal Reserve likely will begin raising interest rates.
Consumers appear relatively confident in the economy and may be poised to spend a decent chunk of their rising incomes during the holiday shopping season. In addition, businesses are stepping up their investment in machinery and equipment, removing a persistent drag on the economy.
The steady consumer and business demand in the United States is powering the economy through economic pressures from overseas, which jolted financial markets during August and September and raised doubts about global growth.
With the U.S. job market on solid footing and wages beginning to rise, the Fed is widely expected to raise short-term rates in mid- December for the first time in nine years.
Wages and salaries jumped 0.6 percent in October, the Commerce Department said Wednesday, and data for the spring and summer was revised substantially higher. U.S. paychecks were 4.9 percent higher in October than they were a year earlier, a sizable gain. By contrast, in the first four years after the Great Recession ended in 2009, paychecks typically rose only about 2 percent to 3 percent.
“The extra growth in wage income is good news for retailers hoping for a strong holiday shopping season,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
O’Sullivan forecasts that the economy’s annual growth rate could reach 2.7 percent in the final three months of the year, from 2.1 percent in the third quarter.
Consumer spending rose only 0.1 percent in October, though that weak showing occurred partly because the month was unusually warm and Americans paid less for heat. In the second and third quarters, consumer spending topped 3 percent, a historically robust level.
With incomes revised higher, the savings rate jumped last month to 5.6 percent, the highest since 2012.
Measures of consumer confidence have been mixed but generally paint an optimistic picture. According to Gallup, Americans plan to spend on average $830 on holiday shopping this winter – the most since 2007, just before the recession officially began.
And consumer sentiment ticked up this month, according to a survey by the University of Michigan. Lower and middle-income Americans were more optimistic about their personal finances in the coming year than higher-income households were, the survey found.
Still, a separate measure of consumer confidence from the Conference Board, a business research group, fell in November to its lowest point in more than a year. It found that fewer Americans expected their incomes to rise.
Even so, Americans are unleashing pent-up demand for big-ticket items such as homes and cars. Sales of new homes jumped last month and have increased 15.7 percent through the first 10 months of 2015.