Consumer Spending Rises Slightly, Is This A Signal That Will Push The Fed To Slow Rates?


 U.S. consumer spending barely increased in November, while inflation has calmed down. However, it is not enough to prevent the Federal Reserve from pushing interest rates higher next year.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.1%, the Commerce Department said on Friday. Data for October was revised to show spending jumped 0.9% instead of 0.8% as previously reported.

Economists polled by Reuters had forecast consumer spending rising 0.2%. Some of the moderation in spending last month reflected a shift in demand from goods to services.

Slower price increases for some goods also reduce the dollar amount of consumer spending. Nevertheless, consumer spending is on track to provide another boost to economic growth this quarter. The economy grew at an annual rate of 3.2% last quarter after contracting in the first half of the year.

Estimated growth for the fourth quarter is as high as 2.7%. Consumer spending was driven by strong wage gains, the result of a tight labor market, as well as savings built up during the first year of the Covid-19 pandemic.

U.S. central bank trying to slow demand for everything from housing to labor as they struggle to bring inflation back to the 2% target. The Fed last week raised its key rate by 50 basis points to a range of 4.25%-4.50%, the highest since late 2007. Fed officials expect the rate to rise between 5.00% and 5.25% next year, a level that could be maintained for a while.

Higher borrowing costs, shrinking savings and shrinking household incomes could curb consumer spending, and send the economy into recession next year.

The price index of personal consumption expenditures (PCE) rose 0.1% last month after rising 0.4% in October. In the 12 months to November, the PCE price index rose 5.5% after rising 6.1% in October.

Excluding volatile food and energy components, the PCE price index rose 0.2% after rising 0.3% in October. The so-called PCE core price index rose 4.7% on a year-over-year basis in November after rising 5.0% in October.

Consumer prices rose less than expected for the second month in a row in November. Consumers' annual inflation expectations also moderated in December, reinforcing the view that price pressures peaked a few months ago.