BUSINESS

U.S. consumer spending and personal incomes show weak gains in November

12/23/2011 09:08 EST | Updated 02/22/2012 05:12 EST
WASHINGTON - American Consumers spent at a lacklustre rate in November as their incomes barely grew, suggesting that U.S. households may struggle to sustain their spending into 2012.

The Commerce Department says consumer spending rose just 0.1 per cent in November, matching the modest October increase. Incomes also rose 0.1 per cent. That was the weakest showing since a 0.1 per cent decline in August.

Both the spending and income gains fell below expectations. Economists have said that solid increases in spending could boost economic growth in the final three months of what has been a disappointing year.

While the economy remains vulnerable to threats, particularly a recession in Europe, the job market has improved, lifting hopes for next year.

The government said this week that applications for unemployment benefits fell by 4,000 last week to 364,000. It was the third straight weekly drop. And it pushed applications to the lowest level since April 2008, in the midst of the Great Recession.

The holiday shopping season is ending up better than expected. As a result, many economists are revising up their growth forecasts.

Analysts at JPMorgan think the economy is growing at an annual rate of 3.5 per cent in the current October-December quarter. That would be up from 1.8 per cent growth in the July-September quarter and would be the best quarterly gain since the spring of 2010.

Economists still expect that growth to be driven by an improvement in consumer spending, which accounts for 70 per cent of economic activity. Spending rose at a 1.7 per cent rate in the third quarter, more than double the second-quarter gain. JPMorgan analysts expect consumer spending to grow at a 3 per cent pace in the current quarter.

Even with the spurt of activity at the end of the year, economists think growth for all of 2011 will be a lacklustre 1.7 per cent.

They had much higher expectations when the year began. But then a spike in gasoline prices held back consumer spending for other items. And the earthquake in Japan disrupted supply chains for auto and electronic parts, dampening factory production in the United States.

Many analysts do not expect growth in 2012 to be significantly better than in 2011. JPMorgan economists predict the economy will expand 1.9 per cent in 2012, only slightly better than this year.