By Timothy R. Homan Nov. 25 (Bloomberg) -- Spending by U.S. consumers rebounded in October more than anticipated, an indication that mounting unemployment has yet to stifle American’s willingness to buy. The 0.7 percent increase in purchases was larger than the median estimate of economists surveyed by Bloomberg News and followed a 0.6 percent September drop, Commerce Department figures showed today in Washington. Incomes climbed 0.2 percent, also exceeding expectations. A jobless rate that is projected to exceed 10 percent through the first half of next year means households will probably contribute less to growth as the economy recovers. Nonetheless, retailers such as J.Crew Group Inc. are among companies seeing improving demand heading into the holiday shopping season. “Consumer spending got off to a good start in the quarter,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. Still, he said, “consumers expect rising unemployment and stagnant incomes in the year ahead, forces that will restrain spending.” Another Commerce Department report showed orders for long- lasting goods unexpectedly dropped last month, depressed by a slump in bookings for defense gear. The median estimate of 75 economists surveyed called for a 0.5 percent increase in spending after an originally reported decrease of 0.5 percent the prior month. Projections ranged from no change to a gain of 0.8 percent. Incomes Increase The gain in incomes followed a similar 0.2 percent increase in September and exceeded the 0.1 percent median estimate in the Bloomberg survey. Wages and salaries were unchanged last month after decreasing 0.1 percent in September. Today’s report showed prices were stabilizing. The inflation gauge tied to spending patterns rose 0.2 percent from October 2008, the first year-over-year gain since April. The Fed’s preferred price measure, which excludes food and fuel, climbed 0.2 percent in October from the previous month and was up 1.4 percent from a year earlier. Adjusted for inflation, spending climbed 0.4 percent following a 0.7 percent drop the prior month. Because the increase in spending was larger than the gain in incomes, the savings rate fell to 4.4 percent from 4.6 percent the prior month. Disposable income, or the money left over after taxes, increased 0.4 percent, the most since May. Adjusted for inflation, disposable income increased 0.2 percent. Rising Profits J.Crew, the U.S. clothing retailer, yesterday reported that third-quarter profit more than doubled. Its shares have more than tripled so far this year. Still, uneven gains in spending are even hurting companies that appeal to bargain shoppers, such as Target Corp., the second-largest U.S. discount chain. The Minneapolis-based company last week said it’s planning for a modest increase in fourth-quarter comparable sales. “We haven’t seen that rebound or that lift yet,” Chairman and Chief Executive Officer Gregg Steinhafel said in a Nov. 17 interview. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 2 percent last month after falling 8.7 percent the prior month. Purchases of non-durable goods increased 0.2 percent, and Spending on services, which account for almost 60 percent of all outlays, climbed 0.3 percent. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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