U.S. consumer spending measured its largest increase in 5 months in November, but it is unclear whether it suggests sustained strength in the economy or holiday-induced swelling.
The Commerce Department said on Monday consumer spending rose 0.5 percent after advancing by a revised 0.4 percent in October. However, it was the seventh straight month of increases and matched economists’ expectations.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.3 percent in October.
A reading on consumer sentiment from Thomson Reuters and the University of Michigan came in at 82.5 in late December, which matched an earlier reading, but fell shy of expectations that a slight increase to 83 would be measured. However, it was the highest reading on a final basis since July, as well.
When adjusted for inflation, consumer spending increased 0.5 percent in November, which followed a rising 0.4 percent in October. November’s increase in “real” consumer spending was the largest since February 2012.
This suggests that consumer spending in the fourth quarter probably accelerated from the third quarter’s 2 percent annual rate.
The report came amid other positive data, including employment and industrial production, which may suggest the economy held on to some of its third-quarter gains leading up to the end of the year, and perhaps is poised for faster growth in 2014.
Despite the signs of strength in the economy, inflation supposedly remains a non-factor. A price index for consumer spending was unchanged for a second consecutive month.
Over the past 12 months consecutive months, consumer prices rose 0.9 percent after gaining 0.7 percent in October.
Excluding food and energy, which accounts for most of Americans’ everyday spending costs, the price index for consumer spending rose 0.1 percent, rising by the same margin for a fifth straight month. However, core prices were up 1.1 percent from a year ago, after rising by the same margin in October.
Both inflation measures continue to fall well below the Federal Reserve’s 2 percent target, which would suggest the U.S. central bank could keep interest rates near zero for a while, even as recent reports claimed the Fed will reduce its monthly bond purchases, known as QE3 or quantitative easing.
Income rose 0.2 percent, rebounding from a 0.1 percent dip in October. With spending outpacing income growth, the saving rate – the percentage of disposable income households are socking away – fell to a nine-month low of 4.2 percent.