U.S. consumer spending rose solidly in December as households bought motor vehicles and a range of services amid rising wages, pointing to sustained domestic demand that is likely to set the economy up for faster growth in early 2017.
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The Commerce Department said on Monday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.5 percent after an unrevised 0.2 percent gain in November.
Economists polled by Reuters had forecast consumer spending climbing 0.5 percent last month. Consumer spending increased 3.8 percent in 2016 after rising 3.5 percent in 2015.
When adjusted for inflation, consumer spending increased 0.3 percent last month after rising 0.2 percent in November.
The data was included in the fourth-quarter gross domestic product report published on Friday. The economy grew at a 1.9 percent annual rate in the fourth quarter, restrained by a wider trade deficit.
Private domestic demand, however, increased at a solid 2.8 percent rate. The economy grew at a 3.5 percent rate in the third quarter.
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With domestic demand rising, inflation showed some signs of picking up last month. The personal consumption expenditures (PCE) price index rose 0.2 percent after edging up 0.1 percent in November.
In the 12 months through December the PCE price index rose 1.6 percent, the biggest increase since September 2014. That followed a 1.4 percent increase in November.
Excluding food and energy, the so-called core PCE price index ticked up 0.1 percent after being unchanged in November.
The core PCE price index increased 1.7 percent year-on-year after a similar gain in November.
The core PCE is the Federal Reserve's preferred inflation measure and is running below its 2 percent target. However, other inflation measures are above the PCE price indexes. The consumer price index (CPI) is currently at 2.1 percent on a year-on-year basis and the core CPI is up 2.2 percent.
Consumer spending last month was buoyed by a 1.4 percent jump in purchases of long-lasting manufactured goods such as automobiles. Spending on services increased 0.4 percent.
Personal income advanced 0.3 percent last month after nudging up 0.1 percent in November. Wages and salaries rebounded 0.4 percent after slipping 0.1 percent in November. Income increased 3.5 percent in 2016 after rising 4.4 percent in 2015.
Savings fell to $768.4 billion last month, the lowest level since May 2015, from $791.2 billion in November.
(Reporting by Lucia Mutikani; Editing by Paul Simao)