American economic activity heading into the final three months of the year and the crucial holiday shopping season appears to have cooled from the robust 3.9 percent expansion in the third quarter as consumer spending, durable goods orders, business investment, and new-home sales were weaker than forecast in October.
Personal spending rose 0.2 percent, less than the projected 0.3 percent gain in a Bloomberg survey, though better than September's flat result. New orders for durable goods excluding civilian aircraft unexpectedly dropped 0.9 percent, far less the 0.5 percent prediction and the prior month's 0.2 percent advance. Non-military capital goods excluding aircraft, a category of durable goods used as a proxy for business investment fell 1.3 percent for a second straight month according to the Commerce Department today. And finally new homes were selling at a 458,000 annual rate in October beneath the 472,000 forecast though up slightly from the 455,000 pace in September.
American economic growth averaged 4.25 percent in the middle six months of the year the best in a decade, propelled the by gains in consumer and business spending.
Today's figures indicate the economy will probably expand at a slower pace in the final quarter and beginning 2015. Steady gains in employment and the lowest gasoline prices in four years may offset static wages as households contemplate the holiday shopping season which traditionally starts after Thursday's Thanksgiving holiday.
Economists at Barclays Plc shaved their estimate for fourth-quarter growth to 2.3 percent from a previous projection of 2.6 percent and Morgan Stanley economists dropped their forecast to 1.5 percent from 1.7 percent according to Bloomberg.
Personal income also rose 0.2 percent in October, less than the 0.4 percent forecast and the same as in September. Wages have been barely outpacing inflation since the recession ended in June 2009, restrained by the large pool of unemployed and underemployed workers, though there have been some tentative signs in recent months that workers may be regaining some bargaining power.
Without stronger wage growth expanding consumer spending can only be fueled by debt, something consumers have been reluctant to increase. Holiday sales growth has been disappointing in the past several years despite initially strong results.
Retailers will have to strike a balance between hope and experience as they prepare for the holiday shopping season.
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