(Bloomberg) -- U.S. consumer spending powered ahead in October even as Americans confronted the fastest inflation in three decades, setting up the economy for a year-end growth spurt.
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Purchases of goods and services, unadjusted for changes in prices, increased 1.3%, the most since March, following a 0.6% gain in September, Commerce Department figures showed Wednesday. After adjusting for higher inflation, spending rose a healthy 0.7%.
The personal consumption expenditures price gauge, which the Federal Reserve uses for its inflation target, rose 0.6% from a month earlier and 5% from October 2020. The figures come as some Fed officials are advocating for a faster tapering of the central bank's asset-purchase program than initially planned.
The U.S. economy's main growth engine -- American consumers -- is shifting into a higher gear. Spending on both goods and services picked up last month. Furthermore, other Wednesday data showed a healthy advance in orders for business equipment, indicating another main pillar of gross domestic product is in solid shape.
That's not to say the economy is without challenges. Robust demand is further straining supply chains and inflation has driven a collapse in consumer sentiment. Moreover, a pickup in Covid-19 cases in recent weeks risks restraining activity through the winter.
As the Fed tries to balance rapid inflation and a labor market still more than 4 million jobs shy of its pre-pandemic level, a host of companies, including Macy's Inc. and Sherwin-Williams Co., are raising wages and boosting perks in a war for talent. Wages and salaries rose 0.8% in October after a 0.9% increase, the Commerce Department's report showed.
Personal income climbed 0.5% even as government assistance to workers during the pandemic subsided further. The saving rate -- or personal saving as a share of disposable income -- fell to 7.3%, more in line with pre-pandemic readings and signaling Americans have less of a cushion.
Disposable personal income, or after-tax income adjusted for inflation, fell for a third month, dropping 0.3% in October. Inflation-adjusted spending on merchandise rose 1% last month, while outlays for services increased 0.5%, the report showed.
The core price index, which excludes food and energy, rose 4.1% from a year ago, the most since 1991. Looking ahead, inflation is expected to surge even higher in the coming months as persistent supply chain challenges and ongoing hiring difficulties push prices higher.
Separate data out Wednesday showed applications for U.S. state unemployment benefits plunged last week to a level not seen since 1969, in part reflecting seasonal factors. U.S. third-quarter economic growth was also revised slightly higher.
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