By Amara Omeokwe 

U.S. households boosted spending for a fifth straight month, helping the economy dig further out from the deep hole created by the pandemic.

The Commerce Department said personal-consumption expenditures -- a measure of household spending on goods and services -- rose 1.4% last month. Consumers have increased spending since the summer, although the pace of gains slowed into early fall.

Personal income -- a measure of what households receive from wages and salaries, government aid and investments -- was up last 0.9% month, after a sharp decline in August, rising on higher pay and remaining pandemic-related aid.

Consumers last month doled out more on autos, clothing and footwear, continuing a trend of robust outlays on goods due to pent-up demand from pandemic-related economic disruptions.

Goods spending rose 2%, on a seasonally adjusted monthly basis. Spending on services was up 1.1% over the month, with higher outlays on health care, fitness and entertainment. Services businesses were hit particularly hard by the pandemic, and service-sector spending remains below pre-pandemic levels.

Richard Moody, chief economist at Regions Financial Corp., said spending trends have reflected a continuing economic upturn, particularly among households that have seen limited job and income losses.

"You still think overall consumer spending is going to continue to grow, just maybe not as strongly as it otherwise would have if either the labor market were fully healed or there having been another round of financial assistance," from the federal government, Mr. Moody said.

Recent private-sector data show consumer spending remains below 2019 levels, led by lower spending on services such as travel, entertainment and restaurants. JPMorgan Chase & Co.'s tracker of credit- and debit-card transactions showed that spending was down 5.2% from a year earlier in the week through Oct. 25.

Spending in the South has rebounded to a greater extent than in other regions. South Carolina, Mississippi and Alabama were up as of mid-October by more than 6% compared with January 2020, according to an analysis by research group Opportunity Insights of consumer credit and debit card spending collected by Affinity Solutions. In New York and California, which were especially hard-hit by a high number of virus cases, spending was down 6% and 8%, respectively, over the same period.

Figures from data firm Earnest Research show that the Southeast and Southwest have led the way on gains in debit and credit card spending. The year-over-year, four-week trailing average for spending was up 3.4% and 4.5% in the Southeast and Southwest, respectively, as of Oct. 21, compared with a 1.4% and 0.4% drop in the Northeast and West.

Coronavirus cases have been rising across the U.S., creating new uncertainty as businesses once again face operating restrictions and staffing challenges, particularly at restaurants and other services operations.

"Services spending will take some time to completely recover," said Pooja Sriram, U.S. economist at Barclays Capital. "It's highly contingent on how confident households feel going out and engaging in those services, given that many of them require in-person contact."

The pickup in personal income last month reflected the effect of a federal supplement to state unemployment benefits that provides recipients with an extra $300 weekly. The end of a separate program that provided a $600 weekly bonus to recipients of unemployment benefits weighed on personal income last month, similar to August.

Personal income in September, nonetheless, was buoyed by a rise in compensation of employees, including for temporary Census workers, the Commerce Department said. Wages and salaries rose 0.8% last month, a smaller gain than the prior month.

A separate report showed consumer confidence in the U.S. increased slightly in October compared with September, but data collected during the second half of the month showed sentiment is stalling, according to a University of Michigan survey released Friday.

The final reading of the index of consumer sentiment was 81.8 in October, marginally higher than the initial estimate from two weeks ago and slightly up from September's 80.4 level. Consumer confidence is 14.3 points lower compared with the same month a year earlier.

Government stimulus to help people weather the pandemic provided a financial cushion to households that has propelled spending in recent months, said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. For example, the federal government allowed for deferred payments on certain types of student loans and mortgages.

"We see that consumers are still spending. In many cases, they are spending differently, meaning the composition of goods and services in their basket are different now," Ms. Piegza said.

Companies such as Mattel Inc. and Chipotle Mexican Grill Inc. this month posted strong quarterly sales figures, reflecting American households' increased interest during the pandemic in at-home entertainment and food that can be ordered online. Orders for long-lasting factory goods rose for the fifth straight month in September amid strong demand for household furnishings and vehicles. Spending on long-lasting goods was up 3% last month.

Carter Rabasa, a self-employed events planner from Seattle, said he and his family over the course of the pandemic had purchased a $1,500 pergola for their backyard, along with making other improvements to their garden area. He said his family had also boosted spending on things such as takeout food.

"We think of it as a sort of pandemic relief. The kids are having this dreadful remote school experience. We're just trying to think of things that will brighten the day and those things cost money," Mr. Rabasa said.

U.S. gross domestic product in the third quarter rose a record 7.4% compared with the second quarter, the Commerce Department said Thursday, as the economy rebounded with the easing of lockdowns and other restrictions on business and consumer activity.

Consumer spending contributed strongly to growth, increasing at a 40.7% annual rate in the third quarter.

Meanwhile, the Labor Department reported initial jobless claims, a proxy for layoffs, fell by 40,000 to 751,000 in the week ended Oct. 24. That was the lowest level of claims since mid-March, although they remained historically high.

Robert Frick, corporate economist at the Navy Federal Credit Union, said economic uncertainties linger, amid a resurgence in coronavirus infections and unevenness in the U.S. labor market, with signs that some layoffs during the pandemic are becoming permanent job losses.

As a result of pandemic-related woes, companies ranging from Boeing Co. to Ralph Lauren Corp. have recently announced job cuts. Boeing said it expects to reduce its head count by another 11,000, building on previously announced cuts to its workforce.

"We're in a precarious place. The twin variables, Covid and stimulus, are even more important than they were, say, a month or two ago," Mr. Frick said. Job growth "seems to be slowing down more than people anticipated, so we need stimulus."

Further federal coronavirus stimulus is unlikely for now, however. Despite weeks of negotiations, Washington lawmakers and Trump administration officials haven't reached an agreement on providing more aid.

Several federal coronavirus aid initiatives have already ended or are winding down. A spokesperson for the Federal Emergency Management Agency said 54 states and territories have been awarded $42 billion to provide the $300 weekly supplement to recipients of state unemployment benefits. President Trump in August issued an executive action allowing states to receive $44 billion in FEMA funds to issue the enhanced benefits, meaning the agency has distributed most of the available funds.

Meanwhile, Americans' short-term outlook on economic conditions worsened this month, weighing on an index of consumer confidence from data firm The Conference Board.

Valarie Black, a single mother of two from Harrisburg, Pa., said she was furloughed from her job as a hotel sales manager in March and ultimately laid off in June. Since then, Ms. Black, 43 years old, said she had been collecting unemployment benefits and searching for work. Finally this month, as her unemployment benefits expired, she accepted a sales position at a car dealership. The pay is commission-based.

"At this point, it's better than making nothing. I know I'm a hustler and I know a lot of people in the area, so I'll just do what I can to sell them cars," Ms. Black said.

But she said she is being conservative with spending.

"At this time, it's a hold on everything until Christmas comes around for my kids," she said.

--Eric Morath and Xavier Fontdegloria contributed to this article.

Write to Amara Omeokwe at


(END) Dow Jones Newswires

October 30, 2020 12:50 ET (16:50 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.