Fiscal cliff drag on economy less than feared so far

The U.S. economy showed surprising signs of economic resilience in November given the approach of the so-called fiscal cliff as consumer spending rose by the most in three years and a gauge of business investment jumped.

Consumer spending rose 0.6 percent last month when adjusted for inflation, while new factory orders for capital goods outside the defense and aerospace sectors -- a proxy for business spending plans -- jumped 2.7 percent, the Commerce Department said on Friday.

Economists had pinned earlier weakness in investment plans on worries lawmakers and the White House might fail to strike a deal to avoid the brunt of tax hikes and government spending cuts scheduled to begin in January.

They also worried consumers would hold back as the end-of-the-year deadline approaches. But Friday's data suggested both consumers and businesses had mostly shrugged off the cliff, at least in November.

"It appears that the looming fiscal cliff hasn't been nearly as disruptive as we had feared," said Paul Ashworth, an economist at Capital Economics in Toronto.

Still, another report provided ample reason for caution as U.S. consumer sentiment slumped in December, with households apparently rattled by on-going negotiations to lessen the scheduled fiscal tightening that could easily trigger a recession next year.

The Thomson Reuters/University of Michigan's final index of consumer sentiment index in December tumbled to 72.9 from 82.7 a month before, worse than forecasts for 74.7.

U.S. stocks opened sharply lower after a Republican proposal for averting the fiscal cliff was abandoned late on Thursday, eroding optimism that a deal could be reached quickly. At the same time, U.S. government debt prices rallied and the dollar gained ground as investors sought a safe haven.

FOURTH QUARTER LOOKING BETTER THAN FEARED

Economists have been expecting economic growth to cool in the fourth quarter as companies slow the pace at which they re-stock their shelves, but the data on Friday suggested consumers are offsetting some of that drag.

"The economy is holding in here at the end of the year despite the concerns about the fiscal cliff," said Gary Thayer, an economic strategist at Wells Fargo Advisors in St. Louis.

Consumer spending grew at just a 1.6 percent annual rate in the third quarter. Real spending declined in October, but November's gain was the strongest since August 2009.

The report on new orders for long-lasting factory goods also gave reason for some optimism regarding fourth-quarter economic growth.

Shipments of non-defense capital goods orders excluding aircraft, used to calculate equipment and software spending in the gross domestic product report, gained 1.8 percent in November, after rising by a softer 0.6 percent in October.

Many economists believe businesses, wary of the fiscal cliff which would slash the nation's trillion-dollar deficit nearly in half in one year, have been cutting back on capital spending.

However, durable goods orders rose 0.7 percent in November, with increases posted for machinery, fabricated metal products, and computer and electronic products offsetting a drag from aircraft.

Economists polled by Reuters had forecast orders for durable goods, items from toasters to aircraft that are meant to last at least three years, rising 0.2 percent last month.

Excluding transportation, orders rose 1.6 percent in November. Transport orders were down 1.1 percent. Previously, U.S. manufacturer Boeing reported new orders for its aircraft fell in November to 124 from 152 in the prior month.

New orders for autos jumped 3.5 percent. U.S. auto sales in November raced to a five-year high for that month on a rebound from storm-ravaged October and the need to replace aging vehicles.

(Additional reporting by Ellen Freilich in New York; Editing by Andrea Ricci)