Gain in Consumer Spending Accompanied by Rising Incomes
An increase in consumer purchases in November was accompanied by rising wages and scant inflation, indicating the biggest part of the U.S. economy will continue to underpin growth.
Household incomes climbed 0.3%, more than forecast, after a 0.4% advance in November, a Commerce Department report showed Dec. 23. Prices were little changed, so spending rose 0.3% after adjusting for inflation, the most in three months.
Consumer outlays, which account for almost 70% of the economy, are being powered by steady hiring, cheap gasoline and rising home equity that also lifted U.S. growth last quarter. In addition to sustained purchases of large-ticket items, such as cars, sales at retailers are being spurred by discounts on holiday-gift merchandise.
“The low inflation is good for the consumer,” said David Sloan, a senior economist at 4cast Inc. in New York. “The consumer looks fairly healthy at the moment. Even though spending has been modest, the income is there to support it.”
Some of the figures were inadvertently released by the Bureau of Economic Analysis on its website Dec. 22. The only number issued ahead of time was the current value of household outlays. Other data typically contained in the report, including changes in incomes, inflation-adjusted spending and the saving rate, were issued at the scheduled time Dec. 23.
“BEA will take steps to ensure that this does not happen again and will take all appropriate action to safeguard economic data,” the agency said in a statement on its website Dec. 22.
The median forecast of economists surveyed by Bloomberg News projected incomes would rise 0.2% in November.
The bigger boost in pay last month included an $11.6 billion increase at an annual rate in bonuses for members of the United Auto Workers union associated with the ratification of their new contract, according to the Commerce Department’s report.
Disposable income, or the money left over after taxes, rose 0.2% after adjusting for inflation. It climbed 0.3% in the prior month and was up 3.5% from November 2014.
Wages and salaries rose 0.5% in November after a 0.6% gain the prior month.
The saving rate inched down to 5.5% from a three-year high of 5.6% in October.
The Federal Reserve’s preferred measure of inflation was little changed, the report showed. The price gauge based on the personal consumption expenditures index increased 0.4% from a year earlier, the biggest 12-month gain since December 2014.
The core price measure, which excludes food and fuel, rose 0.1% from the prior month and was up 1.3% from November 2014. Inflation hasn’t reached the Fed’s 2% goal since April 2012.
The report comes on the heels of data showing the economy expanded at a revised 2% annualized rate in the third quarter, buoyed by a 3% jump in household purchases. Businesses struggled to sell to overseas customers battered by sluggish growth, according to the GDP data.
Within the details of the November spending and income report, household outlays on services were little changed after adjusting for inflation. The category, which includes tourism, legal help, health care and personal care items such as haircuts, is typically difficult for the government to estimate accurately.
Services spending for last month probably reflected a drop in utility use. November temperatures were above average in the eastern half of the nation, consistent with the year-to-date average for the contiguous United States that is the warmest since 2012, according to National Oceanic and Atmospheric Administration data that start in 1895.
Spending on durable goods, which includes automobiles, increased 1.1% after adjusting for inflation. That followed a 0.1% drop. Spending on nondurable goods, which include gasoline, rose 0.9%.
Fed policymakers, who raised the benchmark interest rate this month for the first time since 2006, gave a largely positive assessment of the economy. They set the new target range for the federal funds rate at 0.25% to 0.5%, up from zero to 0.25%. Officials acknowledged that inflation remains too low, saying they plan to “carefully monitor actual and expected progress toward” their 2% target.
Consumers are benefiting from a strengthening job market, with the unemployment rate at a more than seven-year low of 5%. Steady hiring brought the average monthly pace of payrolls this year through November to 210,000, after a 260,000 average for all of 2014 that was the strongest in 15 years.
Gasoline prices that have been sliding since mid-August are at the lowest level since 2009, data from the motoring group AAA showed.
