US Consumer Spending Rises in November, Savings Rate At Ten-Year Low

Americans spent more and saved less in November, a sign that consumer confidence, the prospect of tax cuts and buoyant financial markets are underpinning a strong holiday spending season.

Personal consumption expenditures, a measure of household spending on everything from airfares to washing machines, increased a seasonally adjusted 0.6% in November from the prior month, the Commerce Department said Friday.

Americans are saving at the slowest pace in a decade, which could lead to a slowdown later or the threat of rising debt levels. The personal saving rate in November was 2.9%, compared to 3.2% in October and hitting the lowest level since November 2007.

Personal income, reflecting Americans’ pretax earnings from salaries and investments, rose 0.3% in November from the prior month. The November increase in income reflected a slight easing from the pace of gains over the prior two months.

Economists surveyed by The Wall Street Journal had forecast a 0.4% rise in spending and a 0.4% rise in incomes.

Spending in October was revised down to an 0.2% increase from an earlier estimate of a 0.3% gain. Consumer spending increased a strong 1% in September, revised data showed.

Consumer spending accounts for more than two-thirds of U.S. economic output, and Friday’s report suggests momentum was strong as the final quarter of the year progressed. The latest spending data shows increased outlays in November were driven by spending on goods like recreational items and vehicles, boding well for holiday retailers. Services spending increased 0.6% from October to November, which the report said was driven by electricity and gas outlays.

The report showed inflationary pressures picked up somewhat last month. The price index for personal consumption expenditures, the Federal Reserve’s preferred inflation measure, rose 0.2% from October and was up 1.8% from a year earlier. After touching the Fed’s 2% annual target earlier this year, inflation has been below-target for nine consecutive months, but November’s annual gain reflected a pickup from 1.6% in October.

While the latest inflation reading offers Federal Reserve policy makers some comfort in their battle against low inflation, price gains were weaker when stripped of volatile food and energy costs. So-called core inflation rose 0.1% in November from October, and was up 1.5% from a year earlier.

The Fed voted earlier this month to increase its benchmark federal-funds rate by a quarter percentage point to a range between 1.25% and 1.5%, although two officials dissented against the move over concerns about weak inflation and the central bank’s postmeeting statement said officials are “monitoring inflation developments closely.” Officials have penciled in three quarter-point rate increases for 2018.

Below-target inflation for much of this year has puzzled economists since the unemployment rate is very low, 4.1% in November, and the economy is growing. Gross domestic product grew at a 3.2% annual rate in the third quarter, the government said Thursday, a touch below a prior estimate but pointing to economic momentum ahead of a major tax cut.
Source: Dow Jones