US Consumer Spending Increases in November, Inflation Remains a Concern
US consumer spending increased in November, driven by strong demand for a range of goods and services, according to a report from the Commerce Department. The report showed that consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4% in November, following a downwardly revised 0.3% gain in October.
The increase in spending was led by new motor vehicles, likely in part as households replaced vehicles damaged during Hurricanes Helene and Milton. Spending on recreational goods and vehicles, financial services and insurance, recreation services, healthcare, clothing and footwear, furniture, and housing and utilities also rose.
However, inflation remains a concern, with the personal consumption expenditures (PCE) price index rising 0.1% in November, following an unrevised 0.2% gain in October. The annual increase in core inflation, excluding food and energy, remained stubbornly well above the US central bank’s 2% target.
The report comes as the Federal Reserve cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range, and forecast only two rate reductions in 2025. The central bank’s decision was driven by the economy’s continued resilience and still-high inflation.
Economists warned that the moderation in inflation last month may not have changed the tone of the Fed’s message, and that the economy’s performance is still dependent on the labor market and consumer spending. Strong wage gains and household balance sheets, driven by high stock market and home prices, are underpinning consumer spending, but economists cautioned that it is mostly middle- and higher-income households that are benefiting from these trends, while lower-income consumers are under financial pressure.
The report also showed that personal income rose 0.3%, with wages shooting up 0.6%. Income at the disposal of households after accounting for inflation rose 0.2%, meaning some tapped their savings to fund purchases. The saving rate dipped to 4.4% from 4.5% in October.