Strong US consumer, business spending bolster growth picture

WASHINGTON: US consumer spending accelerated in November and shipments of key capital goods orders increased for the 10th straight month, data showed on Friday, the latest signs of strong momentum in the economy as the year winds down.
But the bullish growth picture was dimmed somewhat as the figures also showed household savings dropped last month to the lowest level in more than nine years. Low savings could hurt consumer spending, though economists are optimistic wage growth will pick up in the new year.
The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.6 per cent last month after gaining 0.2 per cent in October. Spending last month was buoyed by an increase in demand for motor vehicles, recreational goods and utilities.
When adjusted for inflation, consumer spending increased 0.4 per cent in November from unchanged in the prior month. Personal income rose 0.3 per cent last month, with wages increasing 0.4 per cent.
As a result, households dipped into their savings, which fell to $426.2 billion — the lowest level since August 2008 and down from $466.9 billion in October. The saving rate dropped to a 10-year low of 2.9 per cent from 3.2 per cent in October.
In addition to savings, consumer spending is being driven by record household wealth, thanks to a booming stock market and rising home prices.
With the US economy near full employment, economists argue that the tax cuts will only provide a modest boost to growth. President Donald Trump signed the tax legislation into law on Friday. It slashes the corporate income tax rate to 21 per cent from 35 per cent and offers tax cuts for individuals.
The Trump administration argues that the tax cuts will boost both business and consumer spending. But the individual income tax cuts are skewed toward higher-income households, which economists say have a low propensity to consume.
The dollar was trading slightly higher against a basket of currencies while US Treasury yields rose modestly. Stocks on Wall Street slipped.
Despite the increase in spending, monthly inflation remained benign in November. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding volatile food and energy prices, rose 0.1 per cent in November after gaining 0.2 per cent in October.
The so-called core PCE price index increased 1.5 per cent in the 12 months through November, picking up from 1.4 per cent in October. It has undershot the Fed’s 2 per cent target since mid-2012 and its progress could determine the pace at which the US central bank raises interest rates next year. In a third report, the Commerce Department said new home sales jumped 17.5 per cent to a seasonally adjusted annual rate of 733,000 units last month. That was the highest level since July 2007. New home sales surged 26.6 per cent from a year ago. — Reuters