Consumer Spending, Incomes Both Solidly Up

WASHINGTON – U.S. consumer spending rose a sharper-than-expected 0.7 percent in October, but rising food and energy prices ate up much of that gain, a government report showed on Wednesday.

Adjusted for inflation, personal spending climbed a smaller 0.3 percent, a slowdown from September's 0.5 percent advance, the Commerce Department (search) said.

Incomes rose 0.6 percent in October, the biggest increase since May and well ahead of September's 0.2 percent increase, as wages advanced 0.5 percent.

The report showed the economy off to a solid start in the fourth quarter. Wall Street economists had forecast a more modest 0.4 percent rise in spending with income up 0.5 percent.

The department's price index for consumer spending (search) — the Federal Reserve's favorite inflation gauge — shot up 0.4 percent, the biggest rise since May.

But excluding volatile food and energy prices, the inflation index ticked up just 0.1 percent. The year-on-year reading held at 1.5 percent, well within the Fed's inflation comfort zone.

Fed officials are widely expected to bump overnight interest rates up by a quarter-percentage point to 2.25 percent when they meet on Dec. 14.

Overnight rates stood at a 1958 low of 1 percent early this year, but officials say they need to push them up to more normal levels to ensure inflation remains under wraps.

The department said real disposable income (search) — what's left after adjusting for inflation and taxes — rose 0.2 percent.

Consumer spending advanced at a sprightly 5.1 percent annual pace in the third quarter and economists are hopeful a strengthening job market will continue to support spending.

November results from individual retailers are due on Wednesday and will be examined closely by analysts for signs of strength as the holiday shopping season opened. Three indices released on Tuesday suggested the season got off to a sluggish start.