Consumer spending growth weakened in November
Posted Dec 22, 2016 10:18:51 AM.
Last Updated Dec 22, 2016 12:00:10 PM.
This article is more than 5 years old.
WASHINGTON – Consumers slowed the growth in their spending in November and income growth was flat, two worrisome signs at the start of the holiday shopping season.
Consumer spending rose 0.2 per cent in November, the weakest showing since a 0.1 per cent rise in August, the Commerce Department reported Thursday. Spending had posted healthy gains of 0.7 per cent in September and 0.4 per cent in October.
Incomes were unchanged in November after gains of 0.5 per cent in October and 0.4 per cent in September.
So far, spending in the holiday shopping season has not been as strong as last year. That has prompted some stores to offer better deals and incentives such as free shipping.
Retailers have pared down their inventories and offered more exclusive merchandise in a bid to avoid having to offer bigger discounts in coming weeks. But so far, shoppers have shown a willingness to wait. That means stores are once again counting on last-minute buyers for the final stretch of holiday shopping.
Paul Ashworth, chief U.S. economist at Capital Economics, said based on the new report, consumer spending is on track to grow at an annual rate of 2.3 per cent in the fourth quarter, a slowdown from 3 per cent growth in the third quarter.
Consumer spending represents 70 per cent of total economic activity. A separate report Thursday showed that the economy grew 3.5 per cent in the third quarter. However, economists believe growth will ease to around 1.5 per cent in the fourth quarter.
Even with the slowdown, economists are hopeful that consumers will keep spending in 2017.
“The fundamentals for consumers remain good,” said Gus Faucher, senior economist at PNC, in a note to clients. “Rising incomes will support gains in consumer spending throughout 2017, keeping the expansion going.”
The weakness in income growth reflected a 0.1 per cent decline in the most important component, wages and salaries. That drop followed two months of strong wage increases.
The personal saving rate dipped to 5.5 per cent of after-tax income in November, the lowest level since a saving rage of 5.3 per cent in March 2015.
Inflation, as measured by a gauge tied to spending, climbed 1.4 per cent compared to a year ago. Excluding food and energy, prices were up 1.6 per cent from a year ago. Both readings are below the Federal Reserve’s 2 per cent target for annual price increases, allowing the central bank to continue its gradual pace of boosting interest rates to make sure inflation remains under control.
The Fed boosted a key rate by a quarter-point last week, only the second increase in a year, and projected a possible three rate increases for 2017.
