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 But rising consumer sentiment and faster wage growth suggest the
weakness in spending will be temporary, with the economy remaining
on firm ground.
"The fundamentals ... remain very solid," said Gus Faucher, a senior
economist at PNC Financial Services in Pittsburgh. "The conditions
are in place for continued above-trend growth."
The Commerce Department said on Friday that consumer spending, which
accounts for more than two-thirds of U.S. economic activity, slipped
0.2 percent last month after rising 0.5 percent in August. The
decline was the first since January.
While the data led some economists to pare estimates for
fourth-quarter gross domestic product, most still look for an annual
growth pace of 2.5 percent to 3.0 percent after the third quarter's
brisk 3.5 percent clip.
"What we are getting is a frustrating mix of conflicting data. This
is a reflection of 3 percent growth," said Anthony Karydakis, chief
economic strategist at Miller Tabak in New York.
Separately, the Thomson Reuters/University of Michigan's index of
consumer sentiment rose to 86.9 in October from 84.6 last month.
Sentiment has been steadily rising in recent months, and now stands
at its highest level since July 2007.
RISING WAGES
Another report from the Labor Department showed wages and salaries
rose 0.8 percent in the third quarter, the largest increase in more
than six years.
U.S. Treasury debt prices fell on the mixed data, while the dollar
rallied to its highest level since June 2010 against a basket of
currencies, helped by a decision by the Bank of Japan to
significantly ramp up its stimulus program. The BOJ's action also
lifted U.S. stocks to near record highs.
Various business surveys have been hinting at an acceleration in
U.S. wage growth, and the third-quarter increase was a welcome sign
for the labor market.
"This first sign of rising wage pressure in hard data releases
corroborates the Federal Reserve's more sanguine assessment of the
labor market," said Harm Bandholz, chief U.S. economist at UniCredit
Research in New York.
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"If sustained, which we expect, it will further strengthen the Fed's
commitment to continue its policy normalization path, and to
eventually raise rates."
Fed policymakers on Wednesday gave a fairly upbeat assessment of the
labor market, dropping their characterization of labor market slack
as "significant" as they brought their bond-buying stimulus program
to a close.
Officials at the central bank are keen to see faster earnings growth
as they try to lift inflation to their 2 percent target. The
spending report showed the Fed's preferred gauge of core inflation
rose just 1.5 percent in the 12 months through September.
The combination of improving confidence, rising wages and a drop in
gasoline prices to near a four-year low is a good omen for the
upcoming holiday shopping season, particularly given that households
have boosted savings to the highest level since December 2012.
In another upbeat economic sign, factory activity in the Midwest
accelerated in October, with strong gains in new orders and
employment. The strong order books should allay fears of a slowdown
in manufacturing sparked by data earlier this week that showed
unexpected weakness in business spending plans.
"The report is indicative of continued improvement in business
sentiment," said Blerina Uruci, an economist at Barclays in New
York.
(Reporting by Lucia Mutikani; Additional reporting by Richard Leong
in New York; Editing by Paul Simao)
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