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US consumers spending below forecast as savings soar

Nov 27, 2015 12:04 AM EST

The US household spending was up in October, but below the forecast level. Americans are starting off holiday shopping season on a slow start. American consumers have become more cautious in spending than usual.

The encouraging job growth is not translating into spending boost. The demand for capital equipment rose in October while the number of applications for unemployment benefits moved down during the month.

Consumers were benefits from the steepest drop in gasoline prices as it enhanced savings rate. The rise in wages and lower energy bills though power consumption rose due to heating amid dropping temperature levels, are enabled consumers save more.

Despite low inflation and rise in job growth, Americans, though they have wherewithal to propel spending, are still cautious in their spending. 

In Bloomberg, the US Commerce Departmnet said purchases rose 0.1 percent. The average forecast of 74 economists in a survey carried out by Bloomberg indicated 0.3 percent growth, but actual spending growth was at 0.1 percent, while savings rate rose to highest in the past three years.

According CNN reports, there's key shift in spending habits of Americans, who are savings father than they are spending. The US savings rate rose 5.6 percent in October indicating its highest in three years.

The savings rate in September was 5.3 percent. Americans save an extra $40 billion in October more than they spend.

The measure of spending, personal consumption, just edged up 0.1 percent from September to October. The situation of rise in savings and cap on spending would also indicate hesitation among consumers about the economy. In the present context, this thought may not be applicable for the US economy as the GDP growth rate up 2.1 percent more than forecast of 1.5 percent in October.

The consumer spending accounts for two-thirds of US economic activity. Some economists opine that the slowdown in consumer spending may send a warning signal to the US Federal Reserve, which is expected to take a decision on interest rate hike in December meeting. 

However, the 0.4 percent rise in personal income in October is considered to be positive for the US economy. The consumers preferred to save ahead of holiday spending season, notes the Los Angeles Times.

The savings rate in October was the highest since December 2012. The prices rose 0.2 percent during past 12 month period ending October and this was below the annual target of two percent set by US Federal Reserve.

Steven Ricchiuto, Chief Economist at Mizuho Securities USA Inc, explained consumers are picking and choosing when to spend because they have limited dollars.

"What you're seeing in the labor markets is not really translating into confidence or spending on anything other than cars", he added.

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