BUSINESS

US consumer spending expands at solid 0.6 per cent pace in Nov.; income growth up 0.4 per cent

12/23/2014 10:06 EST | Updated 02/22/2015 05:59 EST
WASHINGTON - U.S. consumer spending rose at the fastest pace in three months in November, while income posted the best gain in five months — both encouraging signs for economic growth.

The Commerce Department said Tuesday that consumer spending increased 0.6 per cent in November, double the 0.3 per cent October gain and the best showing since August.

Income, helped by a surge of hiring in November, rose 0.4 per cent after a 0.3 per cent October rise. It was the best showing since a similar rise in June.

Consumer spending is closely watched because it accounts for about 70 per cent of economic activity. The government revised higher spending in each month beginning in July. Those revisions contributed to a boost in overall growth to a sizzling 5 per cent rate in the third quarter.

Economists think growth will slow to around a 2.5 per cent annual rate in the current October-December period, but they believe the economy will remain solid in 2015.

Analysts had forecast a pickup in consumer spending in November based on an earlier report that retail sales jumped 0.7 per cent during the month, the best showing in eight months.

The retail sales report showed that cheaper gas and an improving job market put consumers in a buying mood in November.

The National Retail Federation has forecast that holiday sales will rise 4.1 per cent this year compared with 2013. That would be the biggest gain in three years.

For November, the 0.6 per cent rise in spending reflected a 1.6 per cent in spending on durable goods such as autos and a flat reading for spending on nondurable goods such as clothing. Spending on services showed a 0.6 per cent rise, the fourth straight month of solid gains, reflecting in part increased spending on health services.

The slightly faster increase in spending compared with income in November meant that the personal saving rate slipped to 4.4 per cent, down from 4.6 per cent in October.

Prices, as measured by a gauge tied to spending patterns, increased just 1.2 per cent in November compared with a year ago, down from a 1.4 per cent 12-month rise in October. It was the smallest yearly gain since last March, and it left prices rising well below the 2 per cent target set by the Federal Reserve.

Inflation is expected to remain muted when measured by a gauge tied to consumer spending that is closely watched by the Fed. After ending a policy meeting last year, the Fed said it would remain "patient" in deciding when to start raising interest rates.

With inflation remaining below the Fed's target of 2 per cent, many economists think it will be in no hurry to start raising interest rates even though unemployment, now at 5.8 per cent, is nearing the Fed's goal of 5.2 to 5.5 per cent.

Most economists think consumer spending will keep advancing in 2015 and support economic growth of 3 per cent or more, making 2015 the best year for growth in a decade.