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US consumer spending rises
FROM PAGE B4
Consumer spending surged at a 3.7 percent pace in the third quarter, the fastest in 1-1/2 years, helping to propel the economy to a 3.1 percent growth rate following a 3.0 percent pace of expansion in the April-June quarter.
The Atlanta Fed is forecasting gross domestic product increasing at a 3.1 percent 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 central bank on Wednesday cut its benchmark overnight interest rate by 25 basis points to the 4.25 percent-4.50 percent 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 the incoming Trump administration.
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 percent, with wages shooting up 0.6 percent. Income at the disposal of households after accounting for inflation rose 0.2 percent, meaning some tapped their savings to fund purchases. The saving rate dipped to 4.4 percent from 4.5 percent in October.
Economists did not believe that the moderation in inflation last month would have changed the tone of the Fed’s message on Wednesday. The personal consumption expenditures (PCE) price index rose 0.1 percent after an unrevised 0.2 percent gain in October.
A column chart titled “Monthly change in US Personal Consumption Expenditures Price Index” that tracks the metric over the last year. Prices rose 0.1 percent in November
A column chart titled “Monthly change in US Personal Consumption Expenditures Price Index” that tracks the metric over the last year. Prices rose 0.1 percent in November
Goods prices were unchanged after three straight monthly decreases. Motor vehicle prices increased 0.7 percent, but the cost of recreational goods and vehicles fell for the fourth consecutive month. Services prices rose 0.2 percent after gaining 0.4 percent in October.
Housing inflation increased at the slowest pace since April 2021, reflecting a moderation in rents. The cost of food and accommodation services rose by the most in 10 months.
In the 12 months through November, the PCE price index advanced 2.4 percent after rising 2.3 percent 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 percent. That was the smallest rise since May, and followed an unrevised 0.3 percent gain in October. Core inflation was running at a 2.5 percent rate in the last three months.
In the 12 months through November, core prices increased 2.8 percent after advancing by the same margin in October.
The Fed tracks the PCE price measures for monetary policy. It hiked its policy rate by 5.25 percentage points between March 2022 and July 2023.
“The general disinflation trend, in view of the much higher US dollar, is intact for the next two months,” said Brian Bethune, an economics professor at Boston College. “However, if the incoming administration raises tariffs significantly, that will provoke retaliation and usher in a period of stagflation that will rival the stagflation of the 1970s.”