By Lucia Mutikani
WASHINGTON (Reuters) -U.S. consumer spending increased in November amid strong demand for a range of goods and services, underscoring the economy’s resilience, which saw the Federal Reserve this week projecting fewer interest rate cuts in 2025 than it had in September.
There was also good news on inflation last month after a series of warmer readings. The report from the Commerce Department on Friday showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months. Still, some areas of stickiness remain.
“The economy continues to grow from strong consumer demand as income growth and the wealth effect from higher portfolio values give consumers capacity to spend,” said Jeffrey Roach, chief economist at LPL Financial. “Inflation was more benign than expected but the stickiness of some categories supports the Fed’s hesitancy to materially lower rates next year.”
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month after a downwardly revised 0.3% gain in October, the Commerce Department’s Bureau of Economic Analysis reported.
Economists polled by Reuters had forecast consumer spending advancing 0.5% after a previously reported 0.4% rise in October.
The nearly broad-based 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 also rose as did outlays on financial services and insurance.
There was also increased spending on recreation services, healthcare, clothing and footwear, furniture as well as housing and utilities. Spending at restaurants and bars as well as on hotel and motel stays also increased.
When adjusted for inflation, consumer spending rose 0.3% after edging up 0.1% in October.
Robust consumer spending helped to propel the economy to a 3.1% annualized growth rate in the third quarter after a 3.0% pace of expansion in the April-June quarter.
Economists are expecting only a modest slowdown in consumer spending this quarter after it surged at a 3.7% pace in the July-September quarter, the fastest in 1-1/2 years. The Atlanta Fed is currently forecasting gross domestic product increasing at a 3.2% rate in the fourth quarter.
Fed Chair Jerome Powell on Wednesday described the economy as having “just been remarkable,” adding “I feel very good about … the performance of the economy and we want to keep that going.”
The U.S. central bank on Wednesday cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range. It forecast only two rate reductions in 2025, in a nod to the economy’s continued resilience and still-high inflation.
In September, Fed officials had forecast four quarter-point rate cuts next year. The shallower rate cut path in the latest projections also reflected uncertainty over policies from President-elect Donald Trump’s incoming administration, including tariffs on imported goods, tax cuts and mass deportations of undocumented immigrants, which economists have warned would be inflationary.
U.S. Treasury yields fell on the data. The dollar slipped against a basket of currencies.
STRONG WAGE GAINS
Labor market stamina, marked by low layoffs and strong wage growth, is underpinning consumer spending. Strong household balance sheets, reflecting high stock market and home prices are also driving spending. Household savings remain supportive.
Economists, however, cautioned that it was mostly middle- and higher-income households that were benefiting from the wage gains and wealth effects, noting that lower-income consumers were under financial pressure.
Personal income rose 0.3%, with wages shooting up 0.6%. The saving rate dipped to 4.4% from 4.5% in October.
Monthly inflation subsided after showing little improvement in recent months. The personal consumption expenditures (PCE) price index rose 0.1% last month after an unrevised 0.2% gain in October. In the 12 months through November, the PCE price index advanced 2.4% after rising 2.3% in October.
The increase in the annual inflation rate was partly due to last year’s low readings dropping out of the calculation.
Excluding the volatile food and energy components, the PCE price index climbed 0.1%. That was the smallest rise since May, and followed an unrevised 0.3% gain in October.
In the 12 months through November, so-called core prices increased 2.8% after advancing by the same margin in October. The Fed tracks the PCE price measures for its 2% inflation target. It hiked its policy rate by 5.25 percentage points between March 2022 and July 2023.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Rici)
