Consumer Spending Rises 0.4% as Incomes Climb After Superstorm

Friday, 21 Dec 2012 08:45 AM

 

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Consumers spent and earned more in November, reflecting a rebound from the disruptions caused by Superstorm Sandy.

The Commerce Department said Friday that consumer spending rose 0.4 percent compared with October. Personal income jumped 0.6 percent, the biggest gain in 11 months.

Economists noted that the spending and income growth in November was a healthy sign for the economy, especially in the midst of anxiety and uncertainty from the stalemate in Washington over the fiscal cliff.

Wages and salaries rose $41 billion in November. Sandy had reduced wages at an annual rate of $18 billion in October. Spending had fallen 0.1 percent in October compared with September.

With income rising faster than spending, the saving rate rose to 3.6 percent of income in November. That was up from 3.4 percent in October.

Concerns have been rising that income growth has been too weak to support sustained increases in spending, especially when Americans are worried about possible tax increases in the new year from the "fiscal cliff." That's the name for automatic tax increases and spending cuts due to take effect in January unless Congress and the Obama administration reach a budget deal before the new year.

Consumer spending is closely watched because it accounts for about 70 percent of economic activity.

A separate government report Friday showed that orders to U.S. factories for nondurable goods rose a solid 0.7 percent in November. And a key category that tracks business investment spending gained sharply for a second straight month.

"Despite concerns about the fiscal cliff, businesses appear to have boosted spending at year-end," said Sal Guatieri, senior economist at BMO Capital Markets.

He said his forecast that the economy would grow at an annual rate of 1.5 percent in the October-December quarter might need to be revised higher.

Paul Ashworth, senior economist at Capital Economics, said that based on Friday's reports, he's revising up his estimate of growth for this quarter to an annual rate between 1.5 percent and 2 percent.

On Thursday, the government said the economy grew at an annual rate of 3.1 percent in the July-September quarter, more than twice the 1.3 percent growth rate from April through June. Part of the improvement came from a 1.6 percent increase in consumer spending, slightly better than in the spring.

But analysts think economic growth has slowed in the October-December quarter to an annual rate below 2 percent. Uncertainty about whether or how the fiscal cliff will be resolved has led some businesses to delay or reduce hiring and investment in major equipment.

Many economists expect no improvement in the January-March quarter. The latest forecast from a panel of 48 economists with the National Association for Business Economics is that the economy will expand at an annual rate of 1.8 percent in the first quarter of 2013. Growth at that pace is considered too weak to significantly lower the unemployment rate, now at 7.7 percent.

But economists say growth could strengthen in 2013 if Congress and the administration resolve their budget debate in a way that doesn't too drastically raise taxes or cut government spending.

The Federal Reserve ended a policy meeting last week by deciding to extend its current level of $85 billion in monthly bond purchases indefinitely to try to keep long-term interest rates low.

The Fed also for the first time tied any increase in a key short-term interest rate to a substantially improved job market. It said it planned to keep banks' overnight lending rates at a record low near zero until unemployment has fallen below 6.5 percent — as long as the outlook for inflation remains tame.

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