U.S. Consumer Spending Rises, Savings Rate at 10-Year Low -- Update

By Harriet TorryFeaturesDow Jones Newswires

Americans spent more and saved less in November, a sign that low unemployment, robust consumer confidence, the prospect of tax cuts and buoyant financial markets are underpinning a strong holiday shopping season.

Americans are saving at the slowest pace in a decade, likely in anticipation of continued job and wealth gains as stock indexes barreled to new records last month and the unemployment rate stood at a 17-year low. The personal saving rate in November was 2.9%, the Commerce Department said Friday, falling below 3% for the first time since November 2007, just before the last recession hit.

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Meanwhile spending was strong in a key month of the holiday season, outpacing income gains. Personal consumption expenditures, a measure of household spending, increased a seasonally adjusted 0.6% in November from the prior month. Personal income, reflecting Americans' pretax earnings from salaries and investments, rose 0.3% in November from the prior month.

The income data fell short of economists' expectations, while the spending data exceeded them.

"Very elevated consumer confidence makes people more comfortable saving less," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients. "But the saving rate can't fall forever, so income growth needs to pick up if consumers are to continue spending at their recent pace," he said.

Consumer spending accounts for more than two-thirds of U.S. economic output, and Friday's report suggests momentum was strong as the final quarter of the year progressed. The latest spending data shows increased outlays in November were driven by spending on goods like recreational items and vehicles, boding well for holiday retailers. Services spending increased 0.6% from October to November, which the report said was driven by electricity and gas outlays.

The report showed inflationary pressures picked up somewhat last month. The price index for personal-consumption expenditures, the Federal Reserve's preferred inflation measure, rose 0.2% from October and was up 1.8% from a year earlier. After touching the Fed's 2% annual target earlier this year, inflation has been below-target for nine consecutive months, but November's annual gain reflected a pickup from 1.6% in October.

While the latest inflation reading offers Federal Reserve policy makers some comfort in their battle against low inflation, price gains were weaker when stripped of volatile food and energy costs. So-called core inflation rose 0.1% in November from October, and was up 1.5% from a year earlier.

The Fed voted earlier this month to increase its benchmark federal-funds rate by a quarter percentage point to a range between 1.25% and 1.5%, although two officials dissented against the move over concerns about weak inflation and the central bank's postmeeting statement said officials are "monitoring inflation developments closely." Officials have penciled in three quarter-point rate increases for 2018.

Below-target inflation for much of this year has puzzled economists since the unemployment rate is very low, 4.1% in November, and the economy is growing. Gross domestic product grew at a 3.2% annual rate in the third quarter, the government said Thursday, a touch below a prior estimate but pointing to economic momentum ahead of a major tax cut.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

December 22, 2017 11:09 ET (16:09 GMT)