Consumer spending rose more than forecast in November as incomes increased and gasoline prices dropped, indicating the biggest part of the U.S. economy is strengthening as the year ends.
Household purchases climbed 0.6 percent, the most in three months, after a 0.3 percent October gain that was larger than previously estimated, Commerce Department figures showed in Washington. The median forecast of 76 economists in a Bloomberg survey called for a 0.5 percent rise. Incomes advanced 0.4 percent, the most since June, and the savings rate dropped.
Americans are shopping for clothing, electronics and automobiles as surging employment and the lowest gasoline costs since 2009 bolster confidence and expand buying power. The improving outlook for household spending, which accounts for about 70 percent of the economy, will spur growth this quarter and into 2015 even as the rest of the world cools.
“The strength we saw in consumer spending in the third quarter is continuing,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who correctly predicted the gain in consumption. “Lower gasoline prices are providing a boost, and we haven’t even seen the full benefit yet. The job market has been a big positive.”
Projections for spending ranged from gains of 0.2 percent to 0.7 percent. The previous month’s reading was initially reported as an increase of 0.2 percent.
The Bloomberg survey median called for incomes to rise 0.4 percent. October’s income reading was revised up to a 0.3 percent gain from a previously reported 0.2 percent advance.
The world’s largest economy surged in the third quarter, expanding at the fastest pace in more than a decade, as consumers and businesses spent more than previously estimated, another report showed.
Gross domestic product grew at a 5 percent annual rate from July through September, the biggest advance since the third quarter of 2003, and up from a previously estimated 3.9 percent, according to revised figures from the Commerce Department. The median forecast of 75 economists surveyed by Bloomberg projected a 4.3 percent increase.
Another report showed the housing market continued to struggle to gain traction. Sales of new houses unexpectedly dropped in November to a 438,000 annualized rate, the fewest since July, according to Commerce Department data. Also, the pace for October was revised down to 445,000 from a previously reported 458,000.
Stocks rose, sending the Dow Jones Industrial Average above 18,000 for the first time, as the reports boosted confidence in the economy. The Standard & Poor’s 500 Index climbed 0.2 percent to 2,082.96 at 10:24 a.m. in New York.
The figures for November consumer spending showed broad-based gains in purchases.
After adjusting for inflation, which generates the figures used to calculate GDP, purchases rose 0.7 percent in November after a 0.2 percent increase in the previous month, according to the report.
Spending on durable goods, including automobiles, climbed 2.3 percent after adjusting for inflation, following a 0.4 percent advance. Purchases of non-durable goods, which include gasoline, rose 1 percent.
Demand for automobiles remains a bright spot. Cars and light trucks sold at a 17.1 million annualized rate in November, according to data from Ward’s Automotive Group. In August, the rate was 17.5 million, the most since January 2006.
Household outlays on services increased 0.4 percent after adjusting for inflation, today’s report showed. The category, which includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately until more information is available in later months.
Cheaper fuel is freeing up money for people to spend elsewhere. Regular gasoline at the pump sold at an average $2.38 a gallon as of Dec. 22, down $1.32 from a high this year in April, according to AAA, the biggest U.S. auto group.
The drop in energy expenses is subduing inflation. The price index tied to consumer spending dropped 0.2 percent in November, today’s report showed. It was up 1.2 percent from a year earlier, the smallest 12-month gain since March.
The inflation gauge preferred by Federal Reserve policy makers hasn’t been above their 2 percent goal since March 2012.
Central bank officials on Dec. 17 said they would be “patient” on the timing of the first interest-rate increase and expect inflation to rise gradually toward their goal.
The core price measure, which excludes food and fuel, was unchanged from the prior month and was up 1.4 percent from November 2013. It was the first time the gauge failed to increase on a monthly basis since April 2013.
A healthier labor market is helping boost wages, in turn helping to lift confidence. Payrolls jumped by 321,000 last month, the most in almost three years, and the jobless rate held at a six-year low. The Bloomberg Consumer Comfort Index climbed in the week ended Dec. 14 to the highest reading since mid- November 2007.
The improving outlook is driving holiday-season shopping, benefiting retailers from Best Buy Co. and Gap Inc. to Costco Wholesale Corp. Commerce Department data showed retail sales jumped 0.7 percent in November, showing widespread gains.
“The average American consumer has a little more spending money at this gas rate than they had before,” Thomas Folliard, chief executive officer of CarMax Inc., a seller of used automobiles, said on a Dec. 19 earnings conference call with analysts. “That’s a positive for people’s outlook.”
Falling prices are also helping boost buying power. Disposable income, or the money left over after taxes, climbed 0.5 percent in November from the prior month after adjusting for inflation, the most since March. It was up 2.9 percent over the past 12 months, the biggest year-to-year gain since December 2012.
The saving rate decreased to 4.4 percent, the lowest this year, from 4.6 percent, indicating that consumers are feeling more confident in their jobs. Wages and salaries rose 0.5 percent after a 0.3 percent increase in October.
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