Personal income rose 0.3% in November, a hair below the consensus expectation for a 0.4% gain. Controlling for inflation and removing taxes, real disposable income edged up just 0.1% on the month.
Personal spending increased by 0.6% in nominal terms, ahead of expectations for a 0.5% print. In real terms, spending was up a robust 0.4%, following October’s flat reading.
By component, real spending on non-durable goods led the way, up 0.7%, but services (up 0.4%) and durable goods (up 0.2%) also had good months.
Prices rose 0.2% month-on-month in November, largely due to a rise in energy costs (+4.2%) with inflation accelerating to 1.8% year-on-year (from 1.6%) Core prices rose a softer 0.1% (m/m) in November, and core inflation (y/y) edged up to 1.5% (from 1.4%).
The personal saving rate fell to 2.9% from 3.2% in October.
Key Implications
With the gain in November, consumer spending looks to grow by close to 3% in the fourth quarter, broadly in line with our recent forecast.
Consumers have been a lynchpin of economic activity and are likely to remain so over the next year. With tax cuts giving a lift to take home pay as soon as February and some nascent wage gains, we expect household spending to advance by 2.5% on average during 2018.
Inflation is still the missing part of the puzzle. Today’s report will do little to change the mind of those worried that the Fed will continue to undershoot its target. This was the 67th month that core PCE inflation was below 2% and near-term momentum suggests it will remain there well into 2018. This may be the factor that stays the Fed’s hand even as the pace of economic growth suggests more hikes should be at hand.
