Spending Rises Ahead Of Holiday Shopping Season

A decline in demand for durable goods tempered enthusiasm about strong personal spending and improved jobless numbers Wednesday, causing retailers to worry that continuing economic concerns will put a damper on holiday shopping.

The Commerce Department reported that consumer spending was up 0.7 percent in October after falling 0.6 percent the month before.

The October numbers were the best since August, when the government's Cash for Clunkers program drew buyers into automobile showrooms to take advantage of credits for trading in old-model cars. The program, which has now ended, pushed spending up 1.3 percent in August.

The government also said incomes rose 0.2 percent for the second month in a row.

Personal incomes and spending are both important measures of the strength of the economy — and both have taken a beating during the recession.

Diane Swonk, chief economist with Mesirow Financial, said the good news is that the economy is growing. But she predicted that consumers will spend cautiously on Black Friday, the day after Thanksgiving and the traditional start of the holiday shopping season.

"They're still playing chicken with retailers. They will be playing to the promotions. Retailers who thought they'd get away with lower inventories this holiday season will be shocked because consumers are still extremely careful," she said.

Meanwhile, new Labor Department figures on jobless claims gave Americans more to be thankful for — the report showed that unemployment benefits dropped to 466,000 last week from 501,000 a week earlier. But claims are still above the 425,000 level that analysts have said would signal payroll growth.

It's the first time since January that they've dipped below a half-million. The numbers suggest that the economy is still losing jobs, though at a much slower pace than earlier this year.

But the economic picture wasn't rosy on all fronts. The Commerce Department also reported that orders for big-ticket factory goods fell 0.6 percent last month after rising 2 percent in September.

The biggest decrease — 18.4 percent — came in defense orders. Consumers spent more on costly durable manufactured goods last month. Excluding those, orders for other types of manufactured goods rose 0.4 percent in October, following a 1.8 percent rise in September.

Meanwhile, the Reuters/University of Michigan consumer sentiment index fell to 67.4 in late November from 70.6 in October. But the index was up slightly from 66.0 earlier in November.

"The decline [from October] in consumer confidence was due to grim assessments by consumers of their finances, the worst ever recorded in the 60-year history of the surveys," Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers, told Reuters.

Sales of new homes rose more than expected last month to the highest level in more than a year as the housing market showed stability after its historic collapse. The Commerce Department said sales climbed 6.2 percent to a seasonally adjusted annual rate of 430,000 from 405,000 in September.

From NPR staff and wire reports

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