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US consumer spending up as economy gains steam

The Commerce Department said personal consumption expenditures climbed 0.5 percent in the penultimate month of 2009 fueled by spending on goods as retailers slashed prices to woo shoppers amid the year-end shopping season.

The spending jump was slightly lower than the revised 0.6 percent rise in October and the 0.7 percent anticipated by most economists.

The government data also showed personal income grew 0.4 percent in November, the fastest growth since May, following upwardly revised growth of 0.3 percent the prior two months.

Wage income of Americans climbed 0.3 percent, the largest growth since April.

“Consumers continue to see the effects of the end of the recession in slowly accelerating income growth,” said Scott Hoyt, senior director of consumer economics for Moody’s Economy.com.

“Both wage and personal income grew at the fastest pace since spring, and over a longer period if stimulus and other distortions to the data are removed,” he said, cautioning however that consumers remained cautious in spending this income.

The US saving rate was steady at 4.7 percent in November and little changed since June apart from a dip in August when a government “cash-for-clunkers” incentive scheme sent vehicle sales soaring.

“Rising incomes are also allowing consumers to increase spending without having to dip into their savings,” noted Nigel Gault, chief US economist for IHS Global Insight.

“The consumer is not going to be a key driver of the recovery, but will go along for the ride as incomes improve,” he said.

Some analysts were more cautious in deciphering the fresh data.

“These numbers are a bit disappointing,” said Ian Shepherdson, chief US economist for High Frequency Economics.

He said a rebound in hours worked in November suggested a rather bigger gain in incomes while spending fell short of expectations.

Other analysts worry that double digit US unemployment could dampen the income and consumption of Americans even as the economy recovers from recession that struck in December 2007.

“While off their lows, sustainability in the personal income and consumption sector look weak. High unemployment will put heavy downward pressures on wage growth,” Briefing.com analysts said in a note to clients.

They also concerned that expiry of government stimulus in the form of tax credits “could see another leg down in consumption spending,” a key growth driver.

The US economy grew at a 2.2 percent pace in the third quarter, according to revised government figures Tuesday that suggested a tepid recovery from recession.

The downward revision from last month’s estimate of 2.8 percent growth in gross domestic product (GDP) came on the back of slightly slower consumer spending growth, among other factors.