Better economic outlook as US consumer spending up

US consumer spending posted its largest increase in five months in November, the latest suggestion of sustained strength in the economy as the year winds down.

By (Reuters)

Published: Tue 24 Dec 2013, 1:23 PM

Last updated: Tue 7 Apr 2015, 4:49 PM

The Commerce Department said on Monday consumer spending rose 0.5 per cent after advancing by a revised 0.4 per cent in October. It was the seventh straight month of increases and matched economists’ expectations.

Consumer spending, which accounts for more than two-thirds of US economic activity, was previously reported to have increased 0.3 per cent in October.

When adjusted for inflation, consumer spending increased 0.5 per cent in November after rising 0.4 per cent in October. November’s increase in so-called real consumer spending was the largest since February 2012. This indicates that consumer spending in the fourth quarter probably accelerated from the third quarter’s two per cent annual rate. Spending is being bolstered by improving household balance sheets, thanks to a rising stock market and house prices.

The report added to other upbeat data, such as employment and industrial production, in suggesting that the economy retained some of its third-quarter momentum in the lead-up to the end of the year and was poised for faster growth in 2014.

It also fits in with Federal Reserve’s upbeat view on the economy, which prompted the US central bank to announce last week that it would start reducing its monthly bond purchases from January.

The economy grew at a 4.1 per cent clip in the July-September period, the fastest pace in nearly two years, after expanding at a 2.5 per cent rate in the second quarter. International Monetary Fund managing director Christine Lagarde said on Sunday the international lender would raise its growth forecast for the world’s largest economy next year. The IMF forecast in October that the US economy would expand 2.6 per cent in 2014.

Despite the signs of strength in the economy, inflation remains benign. A price index for consumer spending was unchanged for a second straight month.

Over the past 12 months, prices rose 0.9 per cent. The index had gained 0.7 per cent in October.

Excluding food and energy, the price index for consumer spending rose 0.1 per cent, rising by the same margin for a fifth straight month. Core prices were up 1.1 per cent from a year ago, after rising by the same margin in October.

Both inflation measures continue to trend below the Fed’s two per cent target, which would suggest the US central bank could keep interest rates near zero for a while, even as it reduces its monthly bond purchases.

Income rose 0.2 per cent, rebounding from a 0.1 per cent dip in October. With spending outpacing income growth, the saving rate — the percentage of disposable income households are socking away — fell to a nine-month low of 4.2 per cent.

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