The United States economy demonstrated resilience at the start of the fourth quarter, as consumer spending rose 0.4% in October, slightly above expectations of 0.3%.
However, efforts to bring inflation closer to the Federal Reserve's 2% target have stalled, raising concerns about monetary policy flexibility in the coming year.
Inflation, as measured by the personal consumption expenditures (PCE) price index, increased by 2.3% year-on-year in October, up from September's 2.1% and in line with expectations. Core PCE inflation, excluding food and energy, climbed to 2.8% annually.
Despite these inflationary pressures, the Federal Reserve is widely expected to deliver another interest rate cut at its December meeting.
Economic momentum was driven by robust consumer spending on services such as healthcare, housing, and recreation, while goods spending remained flat. Adjusted for inflation, consumer spending increased 0.1%, aligning with a 2.5% annualised growth rate for the quarter.
Household income and savings also supported spending, with personal incomes rising 0.6% in October.
President-elect Donald Trump’s proposed tariffs could pose additional inflationary risks, with Goldman Sachs estimating a potential 0.9% increase in core PCE inflation if implemented.
Labour market data reflected mixed signals. Unemployment claims fell to 213,000, a seven-month low, while the number of continuing claims rose to 1.91 million, highlighting challenges for some job seekers.
In business investment, non-defence capital goods orders excluding aircraft - a key measure of business spending - declined by 0.2% in October, indicating softness in corporate expenditure.
The Federal Reserve's upcoming policy decision will weigh inflation trends and labour market conditions, with financial markets anticipating a 25-basis-point rate cut in December.