Washington (Reuters) – U.S. consumer spending accelerated in November amid an increase in demand for recreational goods and utilities, but the strong pace of consumption is unlikely to be sustained as savings dropped to their lowest level in more than nine years.
The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6 percent last month after a downwardly revised 0.2 percent increase in October.
Economists polled by Reuters had forecast consumer spending increasing 0.5 percent in November after a previously reported 0.3 percent rise in October. Spending on nondurable goods surged 1.2 percent and outlays on services rose 0.6 percent. Spending on long-lasting goods was unchanged.
When adjusted for inflation, consumer spending increased 0.4 percent in November after being unchanged the prior month.
The report added to bullish data on the labour market, manufacturing and housing in painting a strong picture of the economy as the year winds down.
The government reported on Thursday that the economy grew at a 3.2 percent annualised rate in the third quarter. Growth estimates for the October-December quarter are currently as high as a 3.3 percent pace.
Consumer spending could get a lift from sweeping individual income tax cuts approved by the U.S. Congress this week. The income tax cuts are, however, skewed towards higher-income households, which economists say have a low propensity to consume.
Monthly inflation remained benign in November. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.1 percent in November after gaining 0.2 percent in October. The so-called core PCE increased 1.5 percent in the 12 months through November, picking up from 1.4 percent in October.
The core PCE has undershot the Fed’s 2 percent target since mid-2012. Inflation could determine the pace at which the Fed raises interest rates next year. The U.S. central bank increased borrowing costs three time this year and has forecast three rate hikes in 2018.
Personal income rose 0.3 percent last month after advancing 0.4 percent in October. Wages increased 0.4 percent last month.
With spending outpacing income, savings fell to $426.2 billion (£318.3 billion) in November, the lowest level since August 2008, from $466.9 billion in the prior month. The saving rate dropped to 2.9 percent, the lowest since November 2007, from 3.2 percent in October.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)