U.S. consumer spending rose 0.3 percent in October. What does it imply for the gold market?

Personal consumption expenditures increased 0.3 percent last month after a revised 0.7 percent jump in September. The move was below expectations due to a decline in services. The increase was driven by a 1.0 percent jump in purchases of durable goods (auto-related) and a 1.4 percent surge in nondurables (gasoline-related). On an annual basis, consumer spending rose 4.22 percent. As one can see in the chart below, consumer spending has accelerated since August. However, the Atlanta Fed’s forecast of fourth-quarter real consumer spending growth fell from 3.0 percent to 2.2 percent, while the forecast of real GDP growth declined from 3.6 to 2.4 percent after the release of the report.

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 The income side of the report was definitely more positive, as personal income jumped 0.6 percent in October, following a revised 0.4 percent increase in previous month. The rise was better than expected and it was the biggest gain since April. Importantly, wages and salaries jumped 0.5 percent, generally in line with overall personal income. And the pace of growth also increased on an annual basis, as one can see in the chart below.

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The PCE price index rose 0.24 percent, after a 0.20 increase in the previous month, while its core version edged up 0.11 percent, after a 0.10 rise in September. On an annual basis, the PCE price index jumped 1.41 percent, which means an acceleration from a 1.24 percent jump in September. The core index excluding food and energy prices rose 1.74, after a 1.69 increase in September. Therefore, inflationary pressures strengthened significantly in October, as one can see in the chart below. Although the inflation rate is still below the Fed’s target, such an acceleration should be welcomed by the Fed officials, which is bad news for the gold market. The market odds of an interest rate hike in December jumped from 91.7 percent to 96.3 percent. 

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The take-home message is that the October personal income and outlays report was positive, on balance. Although consumer spending was soft and lowered the forecast of GDP growth in the fourth quarter, there was solid income growth which should support consumer spending over the coming months, while inflationary pressure increased further. Hence, this report – along with other yesterday’s economic news – supports the camp of the U.S. monetary policy hawks who want to raise interest rates in December, which is bad news for the price of gold.