U.S. consumer spending surged in November on strong demand for recreational goods and utilities but savings dropped to their lowest level in more than nine years and inflation remained benign.
The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% last month after a downwardly revised 0.2% increase in October.
Economists polled by Reuters had forecast consumer spending increasing 0.5% in November after a previously reported 0.3% rise in October. Within goods, recreational goods and vehicles was the leading contributor to the increase while, within services, the largest contributor was spending on electricity and gas.
Personal income rose 0.3 percent% after advancing 0.4% in October
“The report added to bullish data on the labor market, manufacturing and housing in painting a strong picture of the economy as the year winds down,” Reuters said.
Consumer spending could get a lift from the income tax cuts approved by the U.S. Congress last week. But household savings dropped to $426.2 billion in November — the lowest level since August 2008 and down from $466.9 billion in October.
“Consumers are still out there spending, but their purchases are being supplemented by low energy costs, credit and a reduction in savings rather than organic income growth,” said Lindsey Piegza, chief economist at Stifel Fixed Income in Chicago. “Without sustained improvement in wages, consumers will struggle to maintain even today’s moderate pace of consumption.”
On the prices front, the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding volatile food and energy prices, rose 0.1% in November after gaining 0.2% in October.
Core PCE increased 1.5% in the 12 months through November, picking up from 1.4% in October but has undershot the Fed’s 2% target since mid-2012.
“There’s little doubt that structural shifts, including increased global competition, the growth in online retailing and new technologies that enable consumers to find the best price instantly and at little cost, are playing a role in holding down prices,” said Mark Vitner, a senior economist at Wells Fargo Securities.