U.S. consumers spent 0.8 percent more on goods and services in October than in September, the U.S. commerce department reported.

Adjusted for inflation, shoppers spent 0.5 percent more, meaning consumers bought a larger volume of items and posted the largest monthly increase in purchases since June.

Households spent more on food and rent. Purchases of new vehicles also increased.

Spending on services continued strong, particularly in travel, as people still sought the experiences they were denied during the COVID lockdown.

However, spending outpaced personal income in August, September, and October, The Wall Street Journal noted, indicating that shoppers are continuing to tap their savings accounts and pile on credit card debt, trends we reported in “U.S. Consumers Keep on Spending as Savings Rate Plummets” (31 May 2022) and “More Americans Unable to Pay Off Credit Card Balances” (20 Sep 2022).

As a result, the personal savings rate—the share of income that people saved instead of spending or paid for taxes—sank to 2.3 percent, its lowest level since July 2005 and the second-lowest since 1959, the WSJ said.

Household incomes grew 0.7 percent in October from September, the fastest in 12 months, due to rising wages and one-time tax credits paid out by California, Rhode Island, and other states.

TREND FORECAST: The cost of food and rent rose last month, indicating that consumers are unable to stop laying out more dollars for necessities. As we have reported, U.S. consumers are spending $443 more per month on goods and services than they did a year ago… or $5196 more than last year.

Purchases of new cars rose last month, indicating that consumers are, as yet, unwilling to stop spending on discretionary items.

As inflation continues, discretionary spending will be squeezed out of household budgets in favor of essentials. That will speed the slowdown in consumer spending, which makes up as much as 70 percent of the U.S. GDP.

Meanwhile, the U.S. Federal Reserve will continue raising its interest rates and the higher interest rates rise the further the economy will sink into recession. And since it will take many weeks for a higher rate to show its effects across the economy, the Fed will continue to run the risk of overcorrecting and driving the economy very deep into a recession.

We renew our forecast that the U.S. economy will enter a recession by July 2023.

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